argue that resources flow to their highest valued use insuring, if there
are no market failures, a purely competitive market will lead to a
well-being maximum. This is
referred to as the price or profit system.
Explain why economists believe this. That is, explain how the price/profit system
Thank you for the opportunity to help you with your question!
Now, in an economy in equilibrium, a given industry can expand only at
the expense of other industries. For at any moment the factors of
production are limited. One industry can be expanded only by diverting
to it labor, land and capital that would otherwise be employed in other
industries. And when a given industry shrinks, or stops expanding its
output, it does not necessarily mean that there has been any net
decline in aggregate production. The shrinkage at that point may have
merely released labor and capital to permit the expansion of other
industries. It is erroneous to conclude, therefore, that a shrinkage of
production in one line necessarily means a shrinkage in total
Everything, in short, is produced at the expense of forgoing something
else. Costs of production themselves, in fact, might be defined as the
things that are given up (the leisure and pleasures, the raw materials with
alternative potential uses) in order to create the thing that is made.
Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 14th, 2015
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