Economics Final Review

A manufacturer of frozen pizzas found that total revenue decreased when the price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

the demand for pizza is elastic above $5 and inelastic below $5.

If a firm finds that it can sell $13,000 worth of a product when its price $5 per unit and $11,000 worth of it when its price is $6, then:

the demand for the product is elastic in the $6-$5 price range.

For an imperfectly competitive firm:

the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

Normal profit is:

the return to the entrepreneur when economic profits are zero.

Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to:

B. reduce the demand for soda and increase the demand for tacos.

In which of the following statements are the terms "demand" and "quantity demanded" used correctly?

B. when the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by:

C. consumers expecting donut prices to fall

Unemployment:

C. is illustrated by a point outside the production possibilities curve.

The market system does not produce public goods because:

C. public enterprises can produce such goods at lower cost than can private enterprises.

Which of the following is not correct? A typical production possibilities curve:

C. specifies how much of each product society should produce.

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates that:

C. the amount of oranges that will be available at various prices has declined.

A firm's supply curve is upsloping because:

D. beyond some point the production costs of additional units of output will rise.

If someone produced too much of a good, this would suggest that:

D. the good was produced to the point where its marginal benefit exceeded its marginal cost.

Which of the following statements is correct?

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

Which of the following is a consequence of rent controls established to keep housing affordable for the poor?

a. Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices. b. the quality of rental housing declines as landlords lack the funds and incentive to maintain properties. c. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled D. All of the above

Suppose you find that the price of your product is less than minimum AVC. You should:

close down because, by producing, your losses will exceed your total fixed costs.

A perfectly inelastic demand curve:

graphs a line parallel to the vertical axis

Accounting profits are typically:

greater than economic profits because the former do not take implicit costs into account.

In the long-run equilibrium, purely competitive markets:

maximize the sum of consumer surplus and producer surplus.

A firm finds that at its MR=MC output, its TC=$1,000, TVC=$800, TFC=$200, and TR=$900. This firm should:

produce because the resulting loss is less than its TFC

The MR=MC rule applies:

to firms in all types of industries