A market equilibrium might not maximize total economic surplus because:
A. in a market equilibrium individuals do not act rationally.
B. efficiency is not an important social goal.
C. in a market equilibrium individuals do not exploit all opportunities for individual gain.
D. sometimes goods entail costs and benefits that do not fall on buyers and sellers.
Answer: D
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If the market wage rate increases, a firm's labor demand curve does not shift but the labor supply curve shifts to the right
Indicate whether the statement is true or false
A small business owner has a line of credit from a bank with a nominal interest rate of seven percent
For several years, the price level has been rising at an annual rate of two percent, but the owner has just read in the newspaper that economists expect next year's inflation rate to be four percent or more. Assume that this owner may either continue the line of credit at seven percent, or renegotiate to alter both the size of the credit and the interest rate. What reason might there be for the owner to keep the credit terms as is? What argument might justify changing the credit agreement?
Adibok knows that it produces and sells high quality athletic shoes. Wurkout knows that it produces and sells low quality athletic shoes. According to the signaling theory of advertising,
a. both Adibok and Wurkout have incentives to spend large amounts of money on advertising for their athletic shoes. b. Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not. c. Wurkout has an incentive to spend a large amount of money on advertising for its athletic shoes, but Adibok does not. d. neither Adibok nor Wurkout has an incentive to spend a large amount of money on advertising for their athletic shoes.
The statement that "as more of a good is consumed, its extra benefit declines" refers to
A. the law of diminishing marginal product. B. the law of diminishing marginal utility. C. the law of demand. D. the law of comparative advantage.