Describe the process by which the competitive market establishes a price at which all firms are just earning normal profits
What will be an ideal response?
Above normal profits will entice new firms to enter the industry, thereby driving down market price and firm profits until they reach the normal level, after which no additional firms enter the industry. Below normal profits will cause some firms to exit the industry, thereby raising market price and firm profits until the normal level is reestablished, and no further firms exit the industry.
You might also like to view...
Refer to Figure 7-4. Suppose the U.S. government imposes a $0.25 per pound tariff on rice imports. Figure 7-4 shows the demand and supply curves for rice and the impact of this tariff. Use the figure to answer questions a-i
a. Following the imposition of the tariff, what is the price that domestic consumers must now pay and what is the quantity purchased? b. Calculate the value of consumer surplus with the tariff in place. c. What is the quantity supplied by domestic rice growers with the tariff in place? d. Calculate the value of producer surplus received by U.S. rice growers with the tariff in place. e. What is the quantity of rice imported with the tariff in place? f. What is the amount of tariff revenue collected by the government? g. The tariff has reduced consumer surplus. Calculate the loss in consumer surplus due to the tariff. h. What portion of the consumer surplus loss is redistributed to domestic producers? To the government? i. Calculate the deadweight loss due to the tariff.
If money demand is extremely sensitive to changes in the interest rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these circumstances, then the interest rate will
A) change very little and investment and consumer spending will change very little. B) rise substantially and investment and consumer spending will rise substantially. C) fall substantially and investment and consumer spending will fall substantially. D) fall substantially and investment and consumer spending will change very little.
False advertising ________ likely to be successful with newly built vacation rental homes on a remote island because the rental homes are a(n) ________ good.
A) is; credence B) is not; experience C) is; experience D) is not; credence
What is an "optimal currency area"? Also, discuss the conditions that must be satisfied for an optimal currency area to exist
What will be an ideal response?