Sofia, a political science student, thinks that the government should intervene to revive declining industries like video rentals and print newspapers
The government, she reasons, can resolve the coordination problem of getting the agents in these markets to trade. Do you agree with her? Explain your answer.
Sofia's reasoning is flawed because declining industries do not face a coordination problem. A coordination problem results when economic agents with coinciding interests cannot be brought together to trade. However, in this case, falling demand is responsible for the decline of industries like video rentals and print newspapers. Even if the government attempted to bring together economic agents in these industries, it is unlikely that demand for rented videos and newspapers will increase.
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During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,
a. the nominal interest rate was 6 percent. b. the nominal interest rate was 14 percent. c. the inflation rate was 12 percent. d. the inflation rate was 9 percent.
Like a perfect competitor, a monopolistic competitor:
a. produces where price equals marginal cost. b. produces a homogeneous product. c. earns zero economic profit in the long run. d. earns zero economic profit in the short run.