What are the obstacles to achieving an efficient allocation of resources in the market economy?
What will be an ideal response?
Markets with price or quantity regulations, taxes or subsidies, externalities, public goods or common resources, monopoly power, or high transactions costs will not produce the efficient quantity of a good or service. In each of these situations, the market prices charged or quantities produced and sold will not result in the efficient allocation of resources. Efficiency requires that the marginal social benefit of the last unit produced be equal to the marginal social cost. The equilibrium at the intersection of the demand and supply curves in the competitive market creates this result. When the market price or quantity is pulled away from the market equilibrium, the marginal social benefit of the last unit produced does not equal its marginal social cost.
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In the long run, an increase in the growth rate of the money supply leads to an increase in the real interest rate, but no change in the nominal interest rate
a. True b. False Indicate whether the statement is true or false
A collective good is one that, to at least some degree, is:
A. consumed by more than one person. B. nonexcludable but rival. C. both nonrival and nonexcludable. D. nonrival but excludable.
The number of times per year that a dollar is spent on final goods and services defines
A. GDP. B. the income velocity of money. C. the money supply. D. the price index.
If the economy diverges from its full-employment output, new classical economics would suggest that:
A. A change in the velocity of money would be all that is needed to return it to its full-employment output B. An improvement in insider-outsider relationships is all that is needed to return it to its full-employment output C. An efficiency wage in the economy would return it to its full-employment output D. Internal mechanisms within the economy would automatically return it to its full-employment output