In a Free Market When There Are Unexploited Gains from Trade

question 94

Multiple Choice

In a free market when there are unexploited gains from trade:

• A) the market is slow to adjust to this situation.
• B) there are sellers who are unwilling to sell at prices buyers are willing to pay.
• C) there are buyers who are willing to pay more for goods than sellers are asking.
• D) an equilibrium price and quantity have been reached.

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Definitions:

Diseconomies of Scale

The phenomenon where production costs per unit increase as a firm or operation grows in scale, opposite of economies of scale.

Returns to Scale

The change in output resulting from a proportionate increase in all inputs; the concept explains how output changes with varying levels of input.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, typically resulting in lower per-unit costs with increased production.

Average Cost Curve

The average cost curve is a graphical representation showing how the average cost per unit of output varies with the level of output, typically U-shaped due to economies and diseconomies of scale.