Use the following to answer questions :
Exhibit: Supply Shock
-(Exhibit: Supply Shock) In this graph, assume that the economy starts at point A and there is a favorable supply shock that does not last forever. In this situation, point ______ represents short-run equilibrium and point ______ represents long-run equilibrium.
A) B; C
B) B; A
C) E; D
D) E; A

Question

Use the following to answer questions :
Exhibit: Supply Shock 
-(Exhibit: Supply Shock) In this graph, assume that the economy starts at point A and there is a favorable supply shock that does not last forever. In this situation, point ______ represents short-run equilibrium and point ______ represents long-run equilibrium.
A) B; C 
B) B; A 
C) E; D 
D) E; A

Quizplus · Accepted Answer

A favorable supply shock initially moves the economy to a new short-run equilibrium at point E, where prices are lower, and output is higher compared to point A. Over time, as the effects of the supply shock wear off and the economy adjusts, it returns to its original long-run equilibrium at point A, where it started.

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