Explain why economic profits in all perfectly competitive markets will tend toward zero in the long run.
What will be an ideal response?
In markets experiencing economic profits, firms will enter, forcing prices and profits down. Profits will be forced down to the zero level because as long as economic profits exist, firms will enter this market. In markets experiencing economic losses, firms will leave, pushing prices up and losses down. Profits will reach zero level because as long as economic losses exist, firms will leave this market.
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What must be true in a perfectly competitive equilibrium?
a. the marginal product of labor is equal to the real wage for every unit of labor. b. the marginal product of labor is equal to the money wage for the last unit of labor. c. the marginal product of labor can be less than the real wage for some units of labor. d. the marginal product of labor can be greater than the price level for some units of labor. e. the marginal product of labor only has to be equal to the real wage for the last unit of labor.
The Federal Reserve focuses on the inflation rate based on the ________ rather than the CPI; to measure the underlying trend in inflation, it focuses on the ________.
A. GDP deflator; overall GDP deflator B. PCE price index; core PCE price index C. PCE price index; overall PCE price index D. GDP deflator; core GDP deflator
You have just noticed that the dollar appreciated and you suspect that U.S. policymakers were behind this change. Which would you choose as the most likely cause of this appreciation in the real exchange rate?
A. A decrease in the money supply B. A temporary increase in government purchases C. An increase in the money supply D. A temporary decrease in taxes
The difference between the maximum a person is willing to pay and current market price is known as
A. nonprice surplus. B. market surplus. C. consumer surplus. D. producer surplus.