Figure 10-8
-Refer to Figure 10-8. Short-run but not long-run equilibrium positions occur at points

Question

Figure 10-8 
-Refer to Figure 10-8. Short-run but not long-run equilibrium positions occur at points

Quizplus · Accepted Answer

Point b represents a short-run equilibrium where the AD curve intersects the SRAS curve. However, at point b, output is above potential output, leading to upward pressure on prices, which causes the SRAS curve to shift leftward to SRAS2. In the long run, the economy moves to the intersection of the new SRAS curve (SRAS2) and the AD curve at point c, where output is at potential output and prices have increased. Therefore, point b is a short-run equilibrium position, but not a long-run equilibrium position. Similarly, at point c, output is at potential output, but prices have already increased. In the long run, the economy returns to the intersection of the SRAS2 and AD curves at point d, which is a long-run equilibrium position. Therefore, point b and c are short-run but not long-run equilibrium positions.

Figure 10-8 -Refer to Figure 10-8. Short-Run but Not Long-Run Equilibrium Positions