Why is it safe to assume that national defense will always be provided by the government instead of the market?
What will be an ideal response?
National defense is a public good, which means that consumption by one person does not exclude consumption by other people. This joint consumption creates a dilemma referred to as the free-rider problem. Once national defense is purchased, even those who do not pay for the defense will benefit from it, so no one person is willing to pay for the defense. The government must get involved and provide national defense and other public goods.
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In its long-run equilibrium, a firm in monopolistic competition
A) makes zero economic profit and operates with excess capacity. B) makes zero economic profit and produces above capacity output. C) makes a positive economic profit and operates with excess capacity. D) makes a positive economic profit and produces above capacity output.
By paying a higher-than-market wage, a firm can avoid the problem of
a. reputation as hostage b. moral hazard c. the winner's curse d. adverse selection e. symmetrical information
Which of the following is a possible explanation for the shift of the production possibilities curve illustrated?
a. an increase in the number of idle factories b. a technological advance that affects only bicycle production c. a technological advance that affects both pizza and bicycle production d. a decrease in the quantity of labor available due to emigration
Which barrier to entry into the market is created when firms engage in predatory pricing?
a. Control of a physical resource b. Intimidating potential competitors c. Legal monopoly d. Natural monopoly