"Demand curves slope down, so the demand curve faced by a perfectly competitive firm must also be downward sloping." Do you agree or disagree? Why?
What will be an ideal response?
Market demand curves slope down. However, the demand curve faced by a perfectly competitive firm is horizontal at the market price. The firm's output is such a small portion of industry output so that it cannot influence the market price. If it sets the price of its good, which is identical to other firms' products, it will be unable to sell any of its output. If it sets its price below the market price, it will not maximize economic profits. Consequently, the firm takes the market price as given, and it receives this per-unit price for any given quantity it produces and sells.
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Consider the following three statements:
i. You can either stand during a college football game or you can sit. You believe that you will see the game very well if you stand and others sit but that you will not be able to see at all if you sit and others stand. You therefore decide to stand. ii. Your friend tells you that he expects many people to stand at football games. iii. An economist studies photos of many college football games and estimates that 75 percent of all fans stand and 25 percent sit. Which of these statements deals with optimization, which deals with equilibrium, and which deals with empiricism? Explain.
A supply curve slopes upwards because
a. the higher the price the lower the quantity that the sellers are willing to supply b. the higher the price the higher the quantity that the sellers are willing to supply c. the quantity supplied in insensitive to price d. an increase in price brings the quantity sold down to zero
An inflation shock is:
A. the level of inflation consistent with output in an expansionary gap. B. a change in the inflation rate generated by excessive aggregate spending. C. the level of inflation consistent with output in a recessionary gap. D. a sudden change in the normal behavior of inflation, unrelated to the nation's output gap.
Normative economics answers the question, "What ought to be?" Positive economics predicts the consequences of alternative actions, answering the questions, "What is?" or "What will be?"
Indicate whether the statement is true or false