“Competition is the mechanism that brings order out of potential chaos in a price-directed economy.” Explain
Please provide the best answer for the statement.
This is true in the absence of government direction of production. Producers are forced to produce at lowest cost by the pressures of competition. If they don’t they will not be able to sell their goods and services, because their rivals will attract the buyers at lower prices. Furthermore, producers must produce what consumers want at prices which just cover their economic costs or other producers will attract the buyers away from them. Thus, producers are driven by competition in the most efficient manner in the sense of maximizing output and the most efficient manner in terms of maximizing society’s satisfaction.
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If financial intermediaries charge a higher rate of interest to lenders than they pay to borrowers, then
a. investing with borrowed funds involves a higher opportunity cost than investing with savings b. investing with saving involves a higher opportunity cost than investing with borrowed funds c. a firm is charged less interest to borrow than it can earn on savings d. the opportunity cost of investing with borrowed funds equals the opportunity cost of investing with savings e. a firm does not consider the market rate of interest when it makes investment decisions
In order to maximize profit, a firm that produces its output in two plants will allocate total output between the two plants so that
A. marginal revenue for the firm is equal to the sum of the plants' marginal costs. B. marginal cost for the firm is equal to the sum of the plants' marginal costs. C. marginal cost is equal for the two plants. D. all of the above
Suppose John is a conservative and the economy is in a recession. Which fiscal policy does he recommend?
a. increase taxes b. decrease taxes c. increase G spending d. decrease G spending e. increase the money supply
The equilibrium interest rate:
A. allocates the available supply of loanable funds to investment projects that have high enough rates of return to justify the borrowing. B. rises when the supply of loanable funds increases. C. is the price paid for the use of any resource. D. affects the size of total output but not the composition of that output.