If there are no profits in competitive equilibrium, why do firms produce? How can they stay in business?
What will be an ideal response?
The “no profits” conclusion of competition refers to economic profits—there is no excess rate of return to the typical firm. However, each firm is able to earn sufficient accounting profits to cover the opportunity cost of invested factors and to continue operating. The source of the confusion is failing to distinguish between accounting and economic profits.
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If a production possibilities frontier is a downward sloping straight line, it
A. shows that there are no trade-offs in the production process. B. shows that resources are not efficiently allocated C. shows that production on the frontier implies that it is not possible to produce more of anything without producing less of something else. D. shows that resources are unemployed.
Which of the following is(are) true regarding the median voter model?
a. In majority voting systems, either the right-wing or the left-wing wins, and so the median voter is the only voter guaranteed not to get his/her preferences met. b. In majority voting systems, the median voter is always a part of the losing side, and so no voter wants to be the median voter. c. In majority voting systems, the median voter determines which outcome wins. d. In majority voting systems, the median voter is always a part of the wining side, and so no voter wants to be the median voter.
Fundamental analysis shows that stock in Johnson's Lumber Company has a price that is less than its present value
a. This stock is overvalued; you should consider adding it to your portfolio. b. This stock is overvalued; you shouldn't consider adding it to your portfolio. c. This stock is undervalued; you should consider adding it to your portfolio. d. This stock is undervalued; you shouldn't consider adding it to your portfolio.
An increase in the spending multiplier causes the IS curve to
A. become flatter. B. shift to the left. C. become steeper. D. shift temporarily to having a positive slope.