Explain how a perfectly competitive market promotes productive efficiency (minimum average costs).
What will be an ideal response?
If economic profits exist in a competitive industry, more firms will enter, shifting the industry MC curve to the right and pulling the industry ATC curve along with it. Eventually the intersection of MC and ATC will reach the demand curve, so that no economic profits exist and entry will cease. Firms will produce at this minimum average cost of production in order to compete. Production efficiency is therefore achieved in the long run.
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The idea that creating incentives for individuals and firms to increase productivity leading to an increase in long-run aggregate supply is
A) the Ricardian equivalence theorem. B) demand-side economics. C) supply-side economics. D) consistent with crowding out.
If you travel to Mexico you will often see currency exchange businesses along the way as you approach the border
Even though each of these businesses is essentially "selling" the same product (i.e. Mexican pesos) how is it that some of them are able to charge more for the peso than others?
Which of the following does not contribute to differences in interest rates?
a. Different loans are for different periods of time. b. Large loans generate more administrative costs per dollar than smaller loans. c. Different loans are subject to different tax rules. d. Loans to established businesses are evaluated differently from loans to new businesses. e. The longer the period of repayment, the greater the risk of higher-than-expected inflation.
Gross domestic product is best described as the
A. measure of a nation’s total economic welfare. B. national income, including nonmarket income. C. sum of money values of all final output produced in the domestic economy within the year. D. national output minus environmental damage.