Suppose that firms in the perfectly competitive potato-growing industry are earning economic profits. According to economic theory, what is likely to happen?
a. The costs of the firms will increase, eventually eliminating the profit.
b. The existence of profits will lead to a drop in the demand for potatoes.
c. More firms will enter the market, thereby increasing the industry supply and lowering the market price.
d. More firms will enter the market, thereby decreasing the industry supply and raising the market price.
Answer: c. More firms will enter the market, thereby increasing the industry supply and lowering the market price.
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The Fed's countercyclical policy tools to eliminate a recession include lowering:
A. the discount rate, raising the Fed funds rate, and selling government bonds on the open market. B. the required reserve ratio, raising the discount rate, and selling government bonds on the open market. C. the required reserve ratio, raising the discount rate, and buying government bonds on the open market. D. the required reserve ratio, lowering the discount rate, and buying government bonds on the open market.
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A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease
Recall the Application about incentives to immunize children in developing countries to answer the following question(s). According to this Application, the incentives described were ________ because they ________ the rate of immunizations.
A. effective; increased B. effective; decreased C. not effective; increased D. not effective; decreased