What answers are required before the notions of horizontal and ...

[nramada]

What answers are required before the notions of horizontal and vertical equity become meaningful?
 
  What will be an ideal response?

Question 2

Do firms in a perfectly contestable market earn positive economic profit in the long run? Explain.
 
  What will be an ideal response?

[ngr69]

Answer to Question 1

First, we have to have a way in which ability to pay is measured. That is, we have to know what the best tax base is. Second, if someone has a greater ability to pay than another, how much more should that person contribute? Answering these questions makes horizontal and vertical equity more meaningful.

Answer to Question 2

No, firms in perfectly contestable markets do not earn positive economic profit in the long run. The openness of the market means that firms are pushed to produce efficiently. In the long run, they end up acting like firms in perfect competition with price equal to average total cost.