MRU12.2: THE BALANCE OF INDUSTRIES AND CREATIVE DESTRUCTION

Rates of profit in competitive industries will: - continue to rise until competitive pressures cease. - tend toward the same level. - always turn negative in the long run. - depend entirely on the technology present.

A: tend toward the same level.

In which of the following situations would Invisible Hand Property #2 be true, but not Invisible Hand Property #1? - An industry is producing the correct quantity of a good but is not maximizing the total value of that output. - An industry is producing no output, but is maximizing the total value of its production. - An industry is producing the correct quantity of a good but is not minimizing the total cost of that production. - An industry is producing the wrong quantity of a good but is minimizing the total cost of that production.

A: An industry is producing the correct quantity of a good but is not minimizing the total cost of that production.

Which of the following is true about profits and losses? - Profits alone are good for the economy, because they reward labor and capital for being valuable. - Losses are good for the economy, because they create a disincentive to be inefficient or wasteful. - Neither is good for the economy, because anything other than zero (normal) profits is inefficient. - Both are good for the economy, because they both create incentives for labor and capital to move into higher-value uses.

A: Both are good for the economy, because they both create incentives for labor and capital to move into higher-value uses.

What does it mean if the price in an industry is greater than the average cost in that industry? - It means that the output of that industry is more profitable than the inputs. - It means that the output of that industry is less profitable than the inputs. - It means that the output of that industry is less valuable than the inputs. - It means that the output of that industry is more valuable than the inputs.

A: It means that the output of that industry is more valuable than the inputs.

Which of the following is NOT a condition that is required for the invisible hand to minimize total costs of production and to achieve the proper balance of industries? - Markets must be regulated. - Markets must be competitive. - Prices must accurately signal benefits. - Prices must accurately signal costs.

A: Markets must be regulated.

In the model of the competitive market, above-normal profits are eliminated by entry. Does this mean that there will tend NOT to be above-normal profits in the long run? - No, because the model predicts that above-normal profits will be eliminated in the short run only. - Yes, the model clearly predicts that all above-normal profits will be eliminated in the long run. - Not necessarily, as some competitive firms such as monopolies can enjoy long-run above-normal profits. - Not necessarily, as entrepreneurs will always try to innovate to find new sources of above-normal profits.

A: Not necessarily, as entrepreneurs will always try to innovate to find new sources of above-normal profits.

Which of the following is a consequence of the Elimination Principle? - Losses are eventually replaced with profits, and profits are eventually replaced with losses. - Competitive industries will be eliminated in the long run. - All competitive firms tend to have the same average and marginal cost curves in the long run. - Only normal profits will exist in the long run in competitive industries.

A: Only normal profits will exist in the long run in competitive industries.

How is the balance of industries achieved? - Through the movement of profits and losses between buyers and sellers - Through the movement of labor and capital across industries - Through the movement of buyers between markets - Through the movement of technological advancements across industries

A: Through the movement of labor and capital across industries

Why do labor and capital move from low value industries to high value industries? - To pursue higher profits - To maximize the value of output - To create a balance of industries - To minimize the costs of production

A: To pursue higher profits

Invisible Hand Property #1 says that a competitive market will: - maximize the value produced across industries. - produce a given quantity of a good at the lowest possible total industry cost. - produce the lowest quantity of goods necessary to achieve a given amount of value. - produce a given quantity of a good at the highest possible total industry value.

A: produce a given quantity of a good at the lowest possible total industry cost.