Long-run equilibrium in the market for capital is reached at the point where net investment ceases.

Question

Quizplus · Accepted Answer

In the long run, the market for capital reaches equilibrium when the supply of and demand for capital are equal, which means that net investment is zero. This is because any excess demand for capital will lead to an increase in the price of capital, making it more expensive for firms to invest and reducing the amount of investment in the market. Conversely, any excess supply of capital will lead to a decrease in the price of capital, making it cheaper for firms to invest and increasing the amount of investment in the market. Therefore, net investment will eventually settle at zero in the long run equilibrium.

Long-Run Equilibrium in the Market for Capital Is Reached at the Point