principles of microeconomic

Economics
Tutor: None Selected Time limit: 1 Day

  1. Economists 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 works.

Jul 14th, 2015

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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 production.

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.


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Jul 14th, 2015

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