Download ECO 232 Microeconomics

ECO 232 Microeconomics
Final Exam Study Guide
Chapter 1
When a society cannot produce all the goods and services people wish to have, it is said
that the economy is experiencing: scarcity.
Economics is defined as the study of: how society manages its scarce resources.
What you give up to obtain an item is called your: opportunity cost.
The amount of goods and services produced from each hour of a worker’s time is called:
productivity.
Chapter 2
In economics, capital refers to: buildings and machines used in the production process.
Microeconomics is the study of: how individual households and firms make decisions.
Chapter 4
The forces that make market economies work are: demand and supply.
Rank the 4 market types from most to least # of firms: perfect competitive, monopolistic
competitive, oligopoly, monopoly.
The law of demand says the when price: rises, quantity demanded falls.
Chapter 5
In general, elasticity is: a measure of how much buyers and sellers respond to changes in
market conditions.
Chapter 7
Consumer surplus is the: amount a consumer is willing to pay less the amount the
consumer actually pays.
In a market, total surplus is: equal to producer surplus plus consumer surplus.
Chapter 8
Deadweight loss is the: fall in total surplus that results from a tax.
Chapter 10
An externality exists when: a person engages in an activity that influences the well-being
of a bystander and yet neither pays nor receives payment for that effect.
Chapter 11
The greatest difficulty with cost-benefit analysis of a public project is determining: the
value or benefit of the project.
Chapter 13
Profit is defined as: total revenue minus total cost.
Economic profit is equal to: total revenue minus the total cost, including both explicit and
implicit costs.
The cost of producing an additional unit of output is the firm’s: marginal cost.
Chapter 18 (10 questions)
Factors of production
I will give you an example of costs incurred by a firm, you tell me which of those is
considered capital.
Understand derived demand as it relates to factors of production.
Understand diminishing marginal product of labor.
What explains the shape of the value-of-marginal-product curve?
Competitive firms will hire workers until what?
Be able to pick the person with the highest opportunity cost of labor from a list of people
you’ll be given information about.
Know the definition of the purchase price of capital.
Know the definition of the rental price of capital.
How do economists define capital?
Chapter 21 (15 questions)
Budget constraint (Make sure you don’t get this confused with the definition of indifference curves!)
What happens to a budget constraint when there is an increase in income?
Know which points on a budget constraint are possible and which are not.
Know what the slope of the budget constraint is (or shows or tells you).
KNOW the properties of indifference curves. (This question may be tricky!)
Know which points on an indifference curve are preferred equally and which would be
preferred over another (while looking at a graph of indifference curves).
Know which indifference curves consumers prefer. (One of the 4 properties of ICs)
Know where the consumer’s optimum is in reference to indifference curves and the
budget constraint. (This question is just words, no graph to look at.)
Be able to find the point the consumer is most likely to choose on a graph of his budget
constraint and indifference curves.
Know what must happen for a person to reach a higher indifference curve. (We only
discussed one way for this to happen!)
Normal good
Inferior good
Be able to determine a person’s opportunity cost of giving up one hour of work for some
other activity.
What does a person do when income increases if the substitution effect > the income
effect?
What does a person do when income increases if the income effect > the substitution
effect?
Chapter 22 (7 questions)
Know the definition of information asymmetry.
Moral hazard
How can employers try to overcome the moral-hazard problem?
Signaling
Behavioral economics
Screening
Satisficer