Use the three basic questions to describe why perfect competition is efficient
What will be an ideal response?
In perfect competition, price is equal to marginal cost. Price reflects the willingness to pay of buyers, while the marginal cost is the opportunity cost of the resources needed to produce the good. Thus, the goods produced will be the ones that buyers want. In addition, resources will be allocated efficiently among firms because firms must minimize the cost of production to maximize profit. Last, competitive free markets ensure that the goods will be distributed to the households in an efficient manner. Households will buy an item if it generates a greater (or equal) amount of utility than its price. As long as households can choose freely how to spend their income, they will not end up with the wrong items.
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If you observe me choosing bundle A over bundle B on Monday, bundle B over bundle C on Tuesday and bundle C over bundle A on Wednesday, it must be that my tastes violate transitivity.
Answer the following statement true (T) or false (F)
Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping. The price sellers receive after a specific tax is imposed on sellers
A) is less than before the tax. B) is higher than before the tax. C) is unchanged. D) depends on the supply elasticity.
Keynesian economics:
a. affirms the classical economists' basic premise concerning competitive markets. b. believes that monopolies and unions tend to be permanent fixtures in our economy and the prices they create tend to be flexible, at least downwardly. c. emphasizes the possibility that an economy can never be in equilibrium at less than full employment. d. prefers to emphasize aggregate supply over aggregate demand. e. believes that unemployment results when aggregate demand is insufficient to reach a full-employment level of real GDP.
What restricts the Fed's ability to write checks and purchase U.S. securities?
a. Congress; the Fed must receive a budget allocation from Congress before it can write a check. b. The gold requirement; the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure. c. Reserve requirements; the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks. d. Nothing; the Fed can create money simply by writing a check on itself.