In a Free-Market Economy That Is Continually Adjusting Toward Equilibrium,a

question 13

Multiple Choice

In a free-market economy that is continually adjusting toward equilibrium,a primary force driving this adjustment is

• A)opportunity costs.
• B)diminishing returns.
• C)the pursuit of allocative efficiency.
• D)the scarcity of resources.
• E)the pursuit of profits.

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Definitions:

Variable Costs

Costs that change in proportion to the level of production or sales activity, such as raw materials and direct labor.

Manufacturing Overhead

All indirect costs associated with the production of goods, such as utilities, maintenance, and manager salaries.

Committed Fixed Costs

Investments in facilities, equipment, and basic organizational structure that can’t be significantly reduced even for short periods of time without making fundamental changes.

Short Run

A period in economics during which the quantities of some inputs cannot be changed, limiting the capacity to adjust production levels.