Explain the concept of inefficiency in terms of a production possibilities curve.
What will be an ideal response?
A production possibilities curve shows potential output using all available resources efficiently and current technology. If an economy does not use all the available resources efficiently with current technology available to it, then it will produce inside the production possibilities curve. This is referred to as inefficiency.
You might also like to view...
What does a price/earnings ratio measure? What does a price/earnings ratio of 33.4 imply?
What will be an ideal response?
Liquidity refers to
a. the relation between the price and interest rate of an asset. b. the risk of an asset relative to its selling price. c. the ease with which an asset is converted into a medium of exchange. d. the sensitivity of investment spending to changes in the interest rate.
The economy is in the horizontal portion of the AS curve, investment spending is interest insensitive and there is no liquidity trap. According to the Keynesian transmission mechanism, if the money supply increases the interest rate will __________, investment spending will __________, the AD curve will __________, and Real GDP will __________
A) fall; fall; left; fall B) rise; drop; left; fall C) fall; remain unchanged; not shift; not change D) rise; remain unchanged; not shift; not change E) none of the above
In a constant-cost industry, an increase in price causes:
A. some firms to exit the industry. B. quantity supplied to remain constant. C. some firms to enter the industry. D. price controls.