Assume that the gold-mining industry is competitive.

(a) Illustrate a long-run equilibrium by using diagrams for the gold market and for a representative gold mine.

(5 marks)

(b) Suppose that an increase in demand for jewellery induces a surge in the demand for gold. Using your diagrams from part (a), explain what happens in the short-run to the gold market and to each existing gold mine.

(10 marks)

(c) If the demand for gold remains high, what would happen to the price over time? Specifically, would the new long-run equilibrium price be above, below or equal to the short-run equilibrium price in part (b)? Is it possible for the new long-run equilibrium price to be above the original long-run equilibrium price? Explain.

(10 marks)