How would a purely competitive industry adjust and restore allocation efficiency when there is an increase in the demand for a product?
What will be an ideal response?
Pure competition is a dynamic market structure that can easily accommodate change and restore equilibrium. Dynamic adjustments will occur automatically in pure competition from changes in demand, changes in resource supplies, or from changes in technology. If demand for a product increases, the price of the product will increase (P > MC). This situation means there is an under allocation of resources to the production of the product. It will create temporary economic profits for representative firms in the industry. The economic profits will attract new firms to the industry to supply output. This increased supply will result in a decline in price until the equilibrium of P = MC is restored.
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Sarah is considering two different insurance plans. One offers free medical visits; the other plan costs less up front but requires that Sarah pay $5 per medical visit. Compare the two plans in terms of the trade-off between risk and moral hazard.
A progressive tax is defined as a tax for which the
a. average tax rate rises as income increases. b. average tax rate falls as income increases. c. average tax rate remains constant at all levels of income. d. dollar tax liability of those with higher income is more than the dollar tax liability of those with lower income.