Assume that the gold-mining industry is perfectly competitive

(a) Illustrate a long-run equilibrium using diagrams for the gold mar

ket and for a representative gold-mine.

(b) Suppose that an increase in jewellery demand induces a surge in

the demand for gold. Using new versions of your diagrams, show

what happens in the short-run to the gold market and to each

existing gold mine.

(c) If the demand for gold remains high, what would happen to the

gold price over time? Specififically, would the new long-run equi

librium price for gold be above, below, or equal to the short-run

equilibrium price after the jewellery-induced shock to the demand

for gold? Is it possible for the new long-run equilibrium price to

be above the original long-run equilibrium price? Explain your

reasoning.