Why does pure competition provide consumers with the largest consumer and producer surpluses?
What will be an ideal response?
In pure competition, product price is determined by the intersection of the demand and supply curves. Product price times quantity is the amount of expenditures made by consumers for the product. In most cases, however, some consumers would have been willing to pay more for the product because consumers collectively would obtain more utility (total satisfaction) from their purchases than the amount of their expenditures. This difference in utility value and the equilibrium price is the consumer surplus. Pure competition is economically efficient (P = MC = minimum ATC) and thus establishes the lowest price consistent with continued production. This lowest price means that the consumers collectively obtain the largest sustainable amount of utility surpluses
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A country's GNP is always larger than its GDP
Indicate whether the statement is true or false
Fred the farmer purchased five new tractors at $20,000 each. Fred sold his old tractors to other farmers for $50,000. The net increase in GDP of these transactions was
A) $50,000. B) $100,000. C) $125,000. D) $150,000.
Which of the following is true about automatic stabilizers?
a. Automatic stabilizers are a part of discretionary fiscal policy. b. The federal funds rate is an example of an automatic stabilizer. c. An automatic stabilizer is any program that responds to fluctuations in the business cycle in a way that moderates the effects of those fluctuations. d. Any kind of trade policy adopted by the government will be considered as an automatic stabilizer. e. When income rises, automatic stabilizers increase/boost spending.
Suppose the nominal interest rate is 10 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 4 percent. At the end of the year, you have earned a real rate of interest of:
A. 14 percent. B. 4 percent. C. 10 percent. D. 6 percent.