How do perfectly competitive markets allow for the movement of resources from less productive industries to more productive industries?

What will be an ideal response?


Perfectly competitive markets are characterized by free entry and exit of firms. Whenever firms in a particular industry are seen to earn positive economic profits, other firms are attracted to the industry. Thus, the firms that are entering the profit-making industry bring resources from other industries where they were not fully utilized. Similarly, when an industry is incurring losses, some firms move out of the industry. This allows for the movement of resources from the less productive, loss-incurring industry to other industries.

Economics

You might also like to view...

Everything else held constant, an autonomous tightening of monetary policy will cause

A) the quantity of aggregate demand to increase. B) the quantity of aggregate demand to decrease. C) aggregate demand to increase. D) aggregate demand to decrease.

Economics

Monetary policy is determined by

a. the president and Congress and involves changing government spending and taxation. b. the president and Congress and involves changing the money supply. c. the Federal Reserve and involves changing government spending and taxation. d. the Federal Reserve and involves changing the money supply.

Economics

The process of invention is the act of

A. introducing a new product into the market. B. applying a process in a new area of the market. C. discovering a new process or product. D. adopting an innovation to a profitable use.

Economics

If the government's expenditures exceeded its receipts, it would likely

a. lend money to a bank or other financial intermediary. b. borrow money from a bank or other financial intermediary. c. buy bonds directly from the public. d. sell bonds directly to the public.

Economics