Explain why having different marginal rates of substitution is necessary for trade to occur
What will be an ideal response?
The marginal rate of substitution is the rate at which a person is willing to trade one good for another. If these rates are not equal for all people, trade can occur. With different marginal rates of substitution, at least one person gains by trading. When the marginal rates of substitution are the same for everyone, everyone is willing to trade goods at the same rate, so no one can gain by trading.
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The Keynesian model
a. assumes a stable, downward sloping Phillips curve in the short run. b. implies a horizontal Phillips curve in the long run. c. shows that the Phillips curve is can be downward or upward sloping in the short run. d. differs from Friedman's analysis pertaining to the vertical long-run Phillips curve.
The price of leisure is the
a. wage rate. b. interest rate. c. discount rate. d. rate of return on investment.
In the long run, the price charged by the monopolistically competitive firm attempting to maximize profits:
A. must be less than ATC. B. must be more than ATC. C. may be either equal to ATC, less than ATC, or more than ATC. D. will be equal to ATC.
According to the policy irrelevance proposition, real Gross Domestic Product (GDP) is determined by
A. a combination of fiscal policy and monetary policy. B. the rate of inflation only. C. the economy's long-run aggregate supply curve. D. the economy's aggregate demand curve.