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:

Economies of Scale

Cost advantages that enterprises obtain due to their size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale.

Diseconomies of Scale

A condition when a company or business grows so large that the costs per unit increase, leading to reduced efficiency.

Constant Returns to Scale

A situation in production where an increase in the quantity of inputs leads to a proportional increase in the quantity of output.

Economic Cost

A payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from an alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product.