With free entry and exit in a competitive market, capital
A)moves to declining industries.
B)moves to growing industries.
C)does not move.
D)becomes more expensive.
E)does not reflect market demand.

Question

Quizplus · Accepted Answer

In a competitive market with free entry and exit, capital will move to growing industries because those industries offer higher returns on investment. Businesses in those industries will expand, thus creating new investment opportunities, incentive for investment, and naturally attracting capital. On the other hand, declining industries will produce lower returns on investment, making them less attractive to investors. Therefore, capital will move away from declining industries.

With Free Entry and Exit in a Competitive Market, Capital