1. Using the concepts of marginal costs and marginal revenues, explain why economic profits are maximized where marginal revenue equals marginal cost and why profits decline if the price is above or below the profit maximizing price.
2. Using the concepts of demand, supply, equilibrium, and price ceilings, explain why a shortage occurs when the price is too low (below equilibrium).
3. Using the concepts of supply, demand, equilibrium, shortages, surpluses, and price, explain why "price gouging" is not possible in economic theory.
4. Explain the difference between economic profits and accounting profits.
5. Using the concepts of relative elasticity and relative inelasticity, explain price elasticity of demand.© BrainMass Inc. brainmass.com October 16, 2018, 7:44 pm ad1c9bdddf
1. Economic profits occur when total income exceeds total expenses, including opportunity costs. Marginal cost is the additional expense incurred when a company produces one additional unit of output. When this is less than the marginal revenue the company can earn from the unit, it is clearly not in the company's best interest to continue to produce. However, if the company can earn more income from an additional unit of output, it can earn greater profits by producing it. Therefore, companies will produce until MC=MR.
2. Supply and demand are in equilibrium when the price is such that the sellers are willing to produce as much as the buyers want to buy. If the price is higher, sellers will want to make more, but ...
Questions on Macroeconomics, Concept of fiscal policy, monetary system of the U.S. and International economics
Answer all four questions:
1. Discuss the concept of the macro economy. How do we define the total value of economic output and how can it be measured. What are the major performance goals that we set for the economy and how do we measure the performance? Discuss the concept of macro economic equilibrium in terms of injections and withdrawals from the circular flow of wealth and in terms of aggregate demand and aggregate supply.
2. Discuss the concept of fiscal policy and problems that may arise. Describe what it is and how it works.
3. Discuss monetary policy. Describe the monetary system of the United States including how it is flexible in relation to economic conditions and how the Federal Reserve System can change the supply of money. Discuss how the supply of money impacts on the economy.
4. Define and discuss the concept of comparative advantage. How does this concept "prove" the advantages of free trade to both countries involved in a transaction? Are there economically justified reasons to restrict free trade? Explain.View Full Posting Details