Assignment question

1. The removal of imperfections in the market leads to an increase in efficiency in the allocation of resources. Discuss whether you agree with this view.

(25 Marks)

2. Explain what is meant by normal and abnormal profit and when such profits might occur

(12 marks)

3. Discuss the three reasons as to why people demand money, according to the liquidity preference theory.

(13 marks)

Table of Contents (Jump to)

Assignment question

List of figures

QUESTION 1: The removal of imperfections in the market leads to an increase in efficiency in the allocation of resources. Discuss whether you agree with this view.

QUESTION 2: Explain what is meant by normal and abnormal profit and when such profits might occur.

QUESTION 3: Discuss the three reasons as to why people demand money, according to liquidity preference theory.

References

List of figures

Figure 1: A perfect competition diagram.

Figure 2: Normal profit in a perfect competition and in monopoly market.

Figure 3: Abnormal profit in a perfect competition and a monopoly market.

Figure 4: Combination of Transactionary , precautionary , speculative demand forming the liquidity preference graph

QUESTION 1: The removal of imperfections in the market leads to an increase in efficiency in the allocation of resources. Discuss whether you agree with this view.

Efficiency is about how effectively the resources such as time and materials are used to produce an end result. In economic terms, it is concerned with the relationship between scarce inputs and outputs. Different forms of efficiency need to be considered.

Allocative efficiency is achieved upon good resource allocation; when no one can be made better off without making someone else worse off. It occurs when the value the consumer puts on a good or service is the same as the cost of the resources used in producing it. The main condition required for allocative efficiency in a given market is that the market price is equal to the marginal cost of supply.Total economic welfare is capitalized in this stance.[1]

Productive efficiency strikes in the lead of the lowest production cost against a minimal wastage of resources. A minimal long run unit cost of production leads to productive efficiency also.