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ECONOMICS 2306 REVIEW SHEET FOR EXAM I The following is a thorough but not exhaustive list of the concepts you need to have mastered for the exam. You should know definitions of terms; formulas and how to use them; graphs, what they represent, and how to draw and read them; tables of data and how to work with them. CHAPTER 1 Economics, scarcity, and choice Resources and payments to resource owners Economic decision makers and their roles in the economy; the circular flow model Product and resource markets The meaning of each of the following terms: marginal analysis; microeconomics; macroeconomics; economic model; positive and normative economic statements Graphs: positive and negative relations between variables; slopes and how to calculate them; shifting of lines CHAPTER 2 Absolute and comparative advantage: definitions; calculating opportunity costs to determine comparative advantage; the law of comparative advantage; the importance of specialization and exchange Production possibilities frontier: definition; points on, inside, and outside the PPF; reason for shape of PPF Movement along the PPF; opportunity cost; law of increasing opportunity cost Causes of shifts of the PPF Economic systems and their characteristics 1 CHAPTER 3 Demand and quantity demanded: law of demand; explanations of the law of demand; constructing a demand curve; movements along the demand curve; factors that shift the demand curve; when to use the term “demand” and when to use “quantity demanded”; normal and inferior goods; substitutes and complements Supply and quantity supplied: law of supply; constructing a supply curve; movements along the supply curve; factors that shift the supply curve; when to use the term “supply” and when to use “quantity supplied”; relevant resources; alternative goods Market equilibrium, equilibrium price, equilibrium quantity; surplus, how to measure a surplus on a graph, market adjustments to correct a surplus; shortage, how to measure a shortage on a graph, market adjustments to correct a shortage Changes in equilibrium price and quantity when the demand curve shifts; changes in equilibrium price and quantity when the supply curve shifts; changes in equilibrium price and quantity when both curves shift simultaneously Price floors and ceilings: definitions, how to depict them on a graph, results and how we deal with them CHAPTER 5 Price elasticity of demand: definition; short and long formulas and calculations; definitions of elastic, unit elastic, inelastic, perfectly elastic, and perfectly inelastic demand and shapes of the demand curves; relationship between elasticity and total revenue; how to interpret ED values; determinants of price elasticity of demand Price elasticity of supply: definition; short and long formulas and calculations; definitions of elastic, unit elastic, inelastic, perfectly elastic, and perfectly inelastic supply, and shapes of the supply curves; how to interpret ES values; determinants of price elasticity of supply Income elasticity of demand: definition; short and long formulas and calculations; signs (+ or -) and their significance; how to interpret IED values Cross-price elasticity of demand: definition; short and long formulas and calculations; signs (+ or -) and their significance; how to interpret CPED values 2 CHAPTER 6 Utility: definition; total utility; marginal utility; law of diminishing marginal utility Utility maximization when there is no scarcity Utility maximization when there is scarcity: marginal utility per dollar spent; consumer equilibrium and how to find it; deriving the law of demand from marginal utility Consumer surplus: definition; calculation 3