Is equilibrium always at an optimal level of output? Explain your answer.
What will be an ideal response?
No. Equilibrium is a unique combination of output and price level at which aggregate demand equals aggregate supply. But this equilibrium may not be consistent with the macro goal of full employment. Equilibrium may occur at an output level above full employment or below full employment. An economy that is in an undesired equilibrium is like a person with an infection that causes a high fever. Because of the infection, the body maintains an undesirable equilibrium at a body temperature that is above the normal 98.6 degrees. The body will not return to this desired normal temperature until it cures itself (in a sort of laissez faire) or receives medical help (in a sort of Keynesian approach). That is where the debate occurs in dealing with a stable but undesired anatomy or economy.
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Which of the following groups gain from international trade?
i. producers of exported goods ii. domestic consumers of imported goods iii. workers in exporting firms A) i only B) ii only C) iii only D) i and iii E) i, ii, and iii
Moral Hazard
What will be an ideal response?
The satisfaction or pleasure one gets from consuming a good or service is called:
A. Price B. Utility C. Income D. Profits
The above figure shows the isoquants for producing steel. Constant returns to scale are
A) present when producing less than 10,000 tons. B) present when producing between 10,000 and 20,000 tons. C) present when producing more than 20,000 tons. D) never present.