Explain how the free-market mechanism adjusts prices so that resource allocation is economically efficient
Firms are induced to buy and use inputs so that they yield the most-valuable outputs per unit of input. Prices are the rationing agents in their decision making. In distribution, the pricing mechanism serves to allocate products among consumers in ways that match individual preferences as they seek to maximize utility. Firms are induced to set MC equal to price, and consumers are induced to set MU equal to price, thus guaranteeing that the rule for efficiency, MC = MU, is satisfied.
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A hike in the federal funds rate results in ________ in the real interest rate, which leads to ________ in investment
A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease E) a decrease; no change
Refer to Figure 7-2. Without the tariff in place, the United States produces
A) 12 million pounds of coffee. B) 26 million pounds of coffee. C) 33 million pounds of coffee. D) 45 million pounds of coffee.
Before the creation of the European Economic Community, there was the
A) European Economic Union. B) European Coal and Steel Community. C) European Union. D) European Free Trade Area. E) Single European Community.
If a firm's marginal revenue exceeds its marginal cost, it should
a. raise its price b. advertise more c. lay off a few employees d. cut back its overhead e. increase its output