In considering economic profit in a market economy, it is correct to say that
A. economic profit tends to reduce the production efficiency of the economy, leading to wasted resources.
B. economic profit performs an important function in allocating resources to their most highly valued uses.
C. economic profit will only occur, even in the short run, as a result of imperfect competition.
D. there should never be any economic profit.
Answer: B
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Suppose, with a given supply and demand curve, the market for guitars would clear at $500, but the current price of guitars is $700. Given the above information,
A) there is a shortage of guitars. B) there is a surplus of guitars. C) the market for guitars is fully coordinated. D) the quantity of guitars supplied equals the quantity demanded.
Starting from long-run equilibrium, a war that raises government purchases results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; potential C. higher; higher D. lower; higher