Explain the concept of diminishing returns
What will be an ideal response?
The principle of diminishing returns shows that in the short run, beyond some point, output will increase at a decreasing rate. For example, producing more output in an existing production facility by increasing the number of workers sharing the facility will bring into effect the principle of diminishing returns, as output will eventually increase but at a decreasing rate.
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What are the two key features of perfectly competitive markets in the Classical Model?
What will be an ideal response?
Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?
Refer to the graph above.
A. P2 and Q4
B. P1 and Q1
C. P2 and Q2
D. P1 and Q3