Why is the pricing outcome of a perfectly competitive firm efficient in economic sense?
What will be an ideal response?
A perfectly competitive firm sells its product at a price that equals the opportunity cost, or the marginal cost, to society of producing one more unit of the product. Because the price that consumers are willing to pay for the last unit of the good is the marginal benefit to them, the pricing outcome of a competitive firm implies that the marginal benefit to consumers equals the marginal cost to society of producing the last unit. This outcome is efficient because it is impossible to increase the output of any good without lowering the value of the total output produced in the economy.
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Refer to Figure 26-5. In the figure above, the movement from point A to point B in the money market would be caused by
A) an open market sale of Treasury securities by the Federal Reserve. B) an increase in the price level. C) a decrease in real GDP. D) an increase in the required reserve ratio by the Federal Reserve.
Define the following terms and explain their importance to the study of economics. a. monopolistic competition b. oligopoly c. cartel d. oligopolistic interdependence
What will be an ideal response?
A Hicksian, or compensated, demand curve reflects:
A. only the substitution effect of a price change. B. only the income effect of a price change. C. both the income and substitution effects of a price change. D. neither the income nor the substitution effects of a price change.
The misallocation of resources associated with price supports:
A. affects both domestic and foreign economies. B. affects only foreign economies. C. affects only the domestic economy. D. is fully offset by reductions in food prices.