A critical assumption in the classical model is that A. markets are perfectly competitive in the short run B. markets clear in the long run C. markets clear in the short run D. markets are perfectly competitive in the long run E. all variables are expressed in nominal terms

Question

Business

Owen Bolton

8 March, 10:58

A critical assumption in the classical model is that A. markets are perfectly competitive in the short run B. markets clear in the long run C. markets clear in the short run D. markets are perfectly competitive in the long run E. all variables are expressed in nominal terms

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Answers (1)

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Lyric Osborn · Answer 1

Letter B is correct. Markets clear in the long run.

Explanation:

The correct alternative is the letter B, since a market clearing price can be defined as the equilibrium price, which is characterized by the price of a good or service whose quantity offered is the same quantity demanded.

Therefore, when there is a situation in which the sale price is higher than the market clearing price, the supply will be greater than the demand, which will create a stock of surpluses that will accumulate in the long run.