Why would it be economically inefficient for a firm to charge the price of a good greater than its marginal cost?
What will be an ideal response?
When price equals marginal cost, the marginal benefit to consumers equals the opportunity cost to society of producing one more unit of the good. This condition is efficient because it is impossible to increase the output of that good without lowering the value of the total output produced in the economy. If a firm charges a price greater than its marginal cost, then the firm is producing too little as people value additional units more than the cost to society of producing them.
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To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change. B. increase. C. decrease. D. either increase or decrease depending on the relative shifts of AD and AS.
Refer to Figure 4-6. At the equilibrium price of P1, consumers are willing to buy Q1 pounds of granola. Is this an economically efficient quantity?
A) No, the marginal cost of the last unit (Q1 ) exceeds the marginal benefit of the last unit. B) No, the marginal benefit of the last unit (Q1 ) exceeds the marginal cost of that last unit. C) Yes, because P1 is the price where marginal benefit equals marginal cost. D) Yes, because marginal cost is zero at the price of P1.
If the prices of inputs changes, what will happen to the aggregate supply curve?
a. It does not move but the economy moves along the curve. b. It depends on whether the input prices rise or fall. c. The curve will become flatter or steeper depending on whether the input prices rise or fall. d. It shifts inward or outward depending on whether the input prices rise or fall.
If the market mechanism causes the economy to arrive at the wrong mix of output, there is:
A.) Market failure. B.) Mixed economy failure. C.) Government failure. D.) Laissez faire.