Entry by competitive firms decreases the market price, while exit by competitive firms increases the market price. Explain why firms enter or exit an industry and why these price changes occur
What will be an ideal response?
Competitive firms will enter an industry where economic profits exist in an attempt to make an economic profit. As new firms enter, the supply increases and the supply curve for the product shifts rightward. The increase in supply drives the price lower. Firms exit an industry when economic losses are incurred. As they leave, supply decreases and the supply curve shifts leftward. The decrease in the supply forces the price higher. Entry and exit continue until the remaining firms in the industry are making zero economic profit.
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Arriving at a decision by comparing total costs and total benefits is called marginal analysis
Indicate whether the statement is true or false
If Toni has an absolute advantage in both sewing and ironing when compared to Tom, then
A) they might benefit from trading, but we need more information to determine in which task they should specialize. B) neither Toni nor Tom can benefit from trading with each other. C) Toni should specialize in sewing, and Tom should specialize in ironing. D) Toni cannot benefit from trading with Tom, but Tom can benefit from trading with Toni. E) Tom cannot benefit from trading with Toni, but Toni can benefit from trading with Tom.
An economy is said to have a comparative advantage in the production of a good if it can:
A) produce that good with more resources than another economy. B) produce that good with a higher opportunity cost than another economy. C) produce that good outside its production possibilities curve. D) produce the good at a lower opportunity cost than another economy.
"Show me a pastoral society with an untouched environment, an abundance of leisure, and nonsecular values, and I will show you an underdeveloped, poverty-ridden country." This statement is most likely to be made by a(n):
A. proponent of economic growth. B. critic of economic growth. C. advocate of network effects. D. advocate of learning by doing.