How does competition ensure that the efficient product mix is attained?
What will be an ideal response?
In a competitive market, producers choose an output level where marginal cost equals price. Thus, Px/Py = MCx/MCy. Each consumer maximizes her own utility subject to the given prices by setting MUx/MUy = px/py. Even though each is acting independently and in her own interest, the final outcome is that px/py = MRS = MRT, which is the condition for efficient product mix.
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Starting from long-run equilibrium, a war that raises government purchases results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; potential C. higher; higher D. lower; higher
Starting from a situation of full employment, an increase in aggregate demand creates ________ and ________ the price level
A) an inflationary gap; raises B) a recessionary gap; lowers C) a recessionary gap; raises D) a recessionary gap; does not change E) an inflationary gap; lowers
At one time, policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices. Today, the curve is no longer viewed this way. Why has the interpretation changed?
The demand for money schedule shows that the quantity of money that people want to hold
A. rises as income rises. B. falls as income rises. C. falls as the interest rate rises. D. falls as the real price of money rises.