Economics Essay

256 WordsDec 12, 20122 Pages
Dinah-Lee Torres Nightly Problems Chapter 7 & 8 1) True or False: explain why the following statements are true or false: a. The economic maxim "there is no cash on the table" means that there are never any unexploited economic opportunities. False. There are unexploited economic opportunities in the short run because the attraction of positive economic profit. b. Firms in competitive environments make no accounting profit when the market is in long run equilibrium. False. Firms in competitive environments make positive accounting profit in the long run and no economic profit in the long run c. Firms that can introduce cost saving innovations can make an economic profit in the short run. True. In the short run, market price of goods have not been adjusted yet so firms experience a decrease in production cost due to cost saving innovations, and as a result it creates higher economic profit. 2) Why do price ceilings reduce economic surplus? Price ceilings reduce economic surplus by wasting producer surplus and preventing any additional surplus for the consumers. It reduces producer surplus because the producer can’t sell at equilibrium price which causes the value of production to be forced down. This creates less production of the regulated item. For consumer surplus, the very low price of the product will drive demand up but with the decrease in supply for the product, the consumer will be unable to consume more of that good. Price ceilings therefore create dead weight loss because of all the product that isn’t being

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