Economic principles

1.Name and explain the conditions or assumptions required for perfect competition.
2.Explain what happens in the long run when firms in an industry are earning positive profit, and why
economists assume normal profit in competitive industries is 0.
3.Explain the “law” of increasing opportunity costs, why we expect to see this tendency, and how it impacts our
graphical representation of a PPF.
4.Why is equilibrium considered efficient?
5.Explain the concept of elasticity (what is it, what does it mean, how is it useful?) and why it is preferable to
looking at slope alone.
6.The market for X is experiencing a shortage. Explain what “market forces” are and how they will adjust this
market until it reaches equilibrium. Provide an example to illustrate.

Sample Solution