Define equilibrium as it relates to markets. Describe the process by which a market reaches a new equilibrium. Include an appropriate diagram.
What will be an ideal response?
The diagram should look like Figure 4-3 in the text. Equilibrium is a situation in which there are no inherent forces that produce change. The price and quantity tend to remain the same, unless some underlying force enters the picture.
If a market is not at equilibrium, there will be a surplus or shortage at the existing price. To remove the surplus or shortage, the price will have to change, leading to a change in the quantity demanded and quantity supplied. A shortage will drive the price up to equilibrium, while a surplus will drive the price down to equilibrium. Price will continue to change until quantity demanded equals quantity supplied and there is no surplus or shortage.
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A monopoly is a market with
A) many suppliers each producing an identical product. B) no barriers to entry. C) many substitutes. D) one supplier. E) many suppliers each producing a slightly different product.
A main argument against indexing is that: a. it can worsen inflation
b. it can reduce asset prices. c. transaction costs are too high. d. it could lead to deflation.
A tariff is
a. a penalty imposed on importers of capital b. a tax on financial transactions c. the result of a treaty d. a tax on either imports or exports e. an agreement between countries to limit trade
At an output of 64, MC = $31, ATC = $31, and MR = $32. At that output the firm is
A. maximizing its profits, but not operating at peak efficiency. B. maximizing its profits and operating at peak efficiency. C. operating at peak efficiency, but not maximizing its profits. D. neither operating at peak efficiency nor maximizing its profits.