Download Review for 1st Exam

Microeconomics
ECON 2302
May 2009
Marilyn Spencer, Ph.D.
Professor of Economics
Review: Chapters 1 - 6
Exam 1, May 20
 Chapters 1 – 6
Study PPT slides
Study assigned end-of-chapter questions
Study with a friend
 Test format:
Short answer questions, problem solving, graphing &
a few multiple choice
Questions include definitions, theory & applications –
Expect graphing and tables of numbers.
75 minutes
Learning Objectives from Chapter 1 You should now be able to:
1. Discuss these three important economic ideas:
1. People are rational.
2. People respond to incentives.
3. Optimal decisions are made at the margin.
2. Discuss how an economy answers these questions:
1. What goods and services will be produced?
2. How will the goods and services be produced?
3. Who will receive the goods and services?
3. Understand the role of models in economic analysis.
4. Distinguish between microeconomics and
macroeconomics.
5. Become familiar with important economic terms.
Chapter 1 MAJOR TOPICS
 Rational behavior
 Positive & normative analysis
 Scarcity
Learning Objectives from Chapter 2 You should now be able to:
1. Use a production possibilities frontier to analyze
opportunity cost and trade-offs.
2. Understand comparative advantage and explain how
it is the basis for trade.
3. Explain the basic idea of how a market system works.
Chapter 2 MAJOR TOPICS
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Production possibilities frontier
Opportunity cost
Marginal opportunity cost
Trade-offs
Comparative advantage
Circular flow of income model
Learning Objectives from Chapter 3 You should now be able to:
1. Discuss the variables that influence demand.
2. Discuss the variables that influence supply.
3. Use a graph to illustrate market equilibrium.
4. Use demand and supply graphs to predict changes in
prices and quantities.
Chapter 3 MAJOR TOPICS
 Law of demand
 Variables that affect demand
 Law of supply
 Variables that affect supply
 Shortage or surplus
 Changes in demand & supply that change the
equilibrium
Learning Objectives from Chapter 4 You should now be able to:
1.
Understand the concepts of consumer surplus and
producer surplus.
2.
Understand the concept of economic efficiency, and use
a graph to illustrate how economic efficiency is reduced
when a market is not in competitive equilibrium.
3.
Use demand and supply graphs to analyze the economic
impact of price ceilings and price floors.
4.
Use demand and supply graphs to analyze the economic
impact of taxes.
Chapter 4 MAJOR TOPICS
 Consumer & producer surplus
 Price floors
 Price ceilings
 Effects of a tax
 Effects of a government subsidy
Learning Objectives from Chapter 5 You should now be able to:
1.
2.
3.
4.
5.
Identify examples of positive and negative externalities
and use graphs to show how externalities affect
economic efficiency.
Discuss the Coase theorem and explain how private
bargaining can lead to economic efficiency in a market
with an externality.
Analyze government policies to achieve economic
efficiency in a market with an externality.
Explain how goods can be categorized on the basis of
whether they are rival and excludable.
Define a public good and a common resource, and use
graphs to illustrate the efficient quantities of public
goods and common resources.
Chapter 5 MAJOR TOPICS
 Positive & negative externalities
 Causes of externalities & market failures
 Coase Theorem
 Common resource problem
 Public goods
 Free rider problem
Learning Objectives from Chapter 6 You should now be able to:
1. Define the price elasticity of demand and understand how
to calculate it.
2. Discuss the determinants of the price elasticity of
demand.
3. Understand the relationship between the price elasticity
of demand and total revenue.
4. Define the cross-price elasticity of demand and the
income elasticity of demand, and understand how they
are calculated and what their main determinants are.
5. Use price elasticity and income elasticity to analyze
economic issues.
6. Define the price elasticity of supply, and understand how
it is calculated and what its main determinants are.
Chapter 6 MAJOR TOPICS
 Determinants of price elasticity of demand
 Calculating price elasticity of demand
 Elasticity of demand and total revenue
 Other elasticities of demand
 Income elasticity of demand
 Cross price elasticity of demand
 Taxes and elasticity of demand
 Elasticity of supply
Any questions on
ANY of these topics?
Assignment to be completed
before May 20:
 Read Ch. 8, and be able to answer
Review Questions: pp. 270-271, 2.1 & 2.2; p.
271, 3.1 & 3.3; p. 273, 4.1 & 4.2; p. 275, 5.15.4; (1st edition: 2, 3, 4, 6, 7, 9, 10, 11 & 12
on p. 259), and
Problems and Applications: p. 271, 2.3 & 2.5;
p. 272, 3.7 & 3.12; p. 274, 4.10 (1st edition:
3, 15 17 & 19 on pp. 259-261).