Why is a competitive market efficient?
What will be an ideal response?
Efficiency is attained when production is such that the marginal social benefit equals the marginal social cost. When a competitive market is at equilibrium, the quantity demanded equals the quantity supplied, that is, the demand and supply curves cross. But the marginal social benefit curve is the same as the demand curve and the marginal social cost curve is the same as the supply curve. Thus equilibrium occurs at the point where the marginal social benefit curve crosses the marginal social cost curve. As a result, so the marginal social benefit equals the marginal social cost and hence the market is efficient.
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When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. The price elasticity of demand for this product is
A. perfectly elastic. B. elastic. C. inelastic. D. unit elastic.
In the context of the production possibilities curve, opportunity cost is measured in:
a. dollars paid for the goods. b. the quantity of other goods given up. c. the value of the resources used. d. changing technology. e. units of satisfaction.
What are intermediate goods? Why do economists exclude the value of intermediate goods while calculating national income?
An event that directly affects firms' costs of production and thus the prices they charge is called
a. a Phillips contraction. b. an inflationary spiral. c. a demand shock. d. a supply shock.