In a perfectly competitive market, in response to a permanent decrease in demand:
a. the short run equilibrium price will be higher than the eventual long run equilibrium price.
b. the short run equilibrium price will be lower than the eventual long run equilibrium price.
c. the short run equilibrium price will be the same as than the eventual long run equilibrium price.
d. we cannot know whether the short run equilibrium price will be above, below or equal to the eventual long run equilibrium price.
Question 2
Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar. In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar. Calculate the opportunity cost of producing sugar in Brazil.
a. Half a pound of coffee
b. 4 pounds of coffee
c. 1 pound of coffee
d. 2 pounds of coffee
e. One and a half pounds of coffee
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