What are signals? How do profits function as signals?
What will be an ideal response?
Signals are compact ways of conveying to economic decision makers information needed to make decisions. A signal not only conveys information, but also provides the incentive to react appropriately. Economic profits are such signals because they indicate to entrepreneurs where they should operate and provide the incentive in that the entrepreneurs' incomes are increased when they respond to the signals.
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Real disposable income is held constant when constructing a consumption function
a. True b. False Indicate whether the statement is true or false
When a private transaction imposes costs on others not directly involved in the transaction, _____
a. a negative externality exists b. a positive externality exists c. the good involved in the transaction is a club good d. the tragedy of commons problem arises e. a free rider problem arises