List three primary ways in which profits above “normal” levels can be earned.
What will be an ideal response?
1. Monopoly power: If a firm can establish a monopoly with some or all of its products, even for a short while, it can use that monopoly power to earn monopoly profits.2. Risk bearing: Firms often engage in financially risky activities, subjecting the capitalist investors in the firm to some financial peril. The extra income pays the firm for bearing risk. A few lucky individuals make out well in this process, but many suffer heavy losses.3. Returns to innovation: This is perhaps the most important of all for social welfare. People who introduce new outputs or new production methods or find new markets for the commodities that the firm sells are called innovative entrepreneurs. The first entrepreneur able to innovate and market a desirable new product or employ a new cost-saving machine will garner a higher profit than what an uninnovative business manager would earn.
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For which of the following is the law of one price least likely to hold?
A) Haircuts B) Gold C) US Treasury Bonds D) Petroleum
During the trough of the business cycle,
a. employment and income are at a low ebb. b. little investment in plant and equipment occurs. c. consumers postpone purchases of durable goods. d. All of these occur.
Discuss some of the reasons why monopoly power is considered undesirable
If the U.S. government imposes an import quota on beef, U.S. net exports will
a. increase, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase. b. increase, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change c. not change, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase. d. not change, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change.