Explain why having different marginal rates of substitution is necessary for trade to occur
What will be an ideal response?
The marginal rate of substitution is the rate at which a person is willing to trade one good for another. If these rates are not equal for all people, trade can occur. With different marginal rates of substitution, at least one person gains by trading. When the marginal rates of substitution are the same for everyone, everyone is willing to trade goods at the same rate, so no one can gain by trading.
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By what mechanism does the economy always return to full employment after a demand shock in the short run?
a. Wages automatically adjust themselves. b. The interest rate automatically adjusts itself. c. Prices automatically adjust themselves. d. Taxes automatically adjust themselves. e. Rents automatically adjust themselves.
If the four-firm concentration ratio for an industry is 84 percent, then
A) each of the firms account for 21 percent of total sales. B) the four largest firms in the industry account for 16 percent of the total sales. C) the four largest firms in the industry account for 84 percent of the total sales. D) the remaining firms in the industry accounts for 84 percent of the total sales.