Describe how economic losses are eliminated in a perfectly competitive industry
What will be an ideal response?
If firms are incurring economic losses, some will exit in the long run. When firms exit, the market supply decreases and the market supply curve shifts leftward. When supply decreases, the price rises. As the price rises, the surviving firms increase production and their economic losses are eliminated.
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Fractional reserve banking originated
A) when the United States Congress passed a law regarding the required reserve ratio. B) when goldsmiths realized they could issue warehouse receipts beyond gold on deposits. C) with the establishment of the Federal Reserve System. D) in the United States with the Clayton Act.
The excess burden of a tax
A) is measured by the administrative costs required to implement a tax system. B) is a measure of the foregone consumption as a result of having to pay taxes. C) is a measure of the hardship imposed on low-income individuals in a society. D) measures the efficiency loss to the economy that results from a tax, causing a reduction in the quantity of goods and services produced.
The key interest rate in the Eurocurrency market is the
A) London interbank offer rate. B) Eurobank spread rate. C) Prime rate. D) C.D. rate.
The marginal rate of substitution is the slope of the budget constraint
a. True b. False Indicate whether the statement is true or false