If general equilibrium prices hold in every market in an economy, then, compared to the equilibrium...

If general equilibrium prices hold in every market in an economy, then, compared to the equilibrium allocation:

Group of answer choices

If some resources were moved from the production of good x to the production of good y, then the amount produced of each good must go down

If some resources were moved from production of good x to production of good y, at least some consumers would have to give up more x than they are willing to trade for the increased y.

It may be possible to move some resources from the production of good x to the production of good y in a way that makes all consumers better off, but the total output of the two goods added together would have to fall.

2. "In a monopolistically competitive market, if some firms leave the market for non-economic reasons (for example, the owners retire), then the remaining firms will make positive economic profits." This statement is:

Group of answer choices

True in the long run, but not in the short run

True in both the short run and the long run

True in the short run, but not in the long run

False in both the short run and the long run

Solutions

Expert Solution

Ans 1: The correct option is:

If some resources were moved from production of good x to production of good y, at least some consumers would have to give up more x than they are willing to trade for the increased y.

This is because in general equilibrium, it is not possible to increase the consumption of one good by keeping the consumption of other good same. We have to give up some amount of good x in order to consume more of good y In the same way, depending upon the MRS (marginal rate of substitution), some consumer would be ready to give up more of good x or less of good x in order to achieve more of good y.

Ans 2: The correct option is:True in the short run, but not in the long run

In the short run, it is possible that they earn positive economic profits since the rival firms are less in the number. But as their profit level increases, it attracts new firms (young entrepreneurs), that increases the market supply and reduces the opportunity to earn positive economic profit in the long run.

Rahul Sunny answered 1 year ago

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