Review for the Final Exam
Students should
consider the following approach to preparing for the final:
- Study all your notes for the entire semester. Skimming your
notes is insufficient. Students should work through their notes diligently.
They should take time to think carefully about each topic. Rewriting
notes is often very helpful.
- Review your old unit exams. Look at what questions you
missed on old unit exams. Since you're likely to see similar
questions on the final, go back and study these trouble spots. You should be able to explain
why each right answer is correct and why all the wrong options are
incorrect.
- Students can use old finals to identify topics that they have not
yet mastered. After studying for many hours, take a couple practice runs at old exams.
Pay attention to what questions you miss. Go back and study these
topics. Don't spend too much time with these exams. Use them
only as an indicator of what topics you have mastered and what topics you
still need to study.
- Visit me or the department
tutors. After using your notes and the old finals to
identify material you have not yet mastered, seek help on those topics.
- Review your book. Students should go back and review margin
notes, highlighted passages, and end-of-the-chapter reviews. They
should also reread any passages that explain topics with which the student
is still having trouble.
- Study you notes again and again. See #1 above.
Introduction
- Definitions: Economics, Microeconomics, Macroeconomics, Scarcity, Resources
- Economic Questions: What?, How?, for Whom?
- Positive versus Normative Statements
- Models and Theories
- Fallacies: Fallacy of Composition, Post Hoc Fallacy
- Allocative Efficiency
- Productive Efficiency
- Economic Systems: Capitalism, Socialism
PPF Model
- PPF Curve: Definition, Shape, Areas, Shifts, Opportunity Cost
- Increasing Opportunity Cost
- Unemployment and Inefficiency
- Marginal Concept
Supply and Demand--Basics
- Demand: Definition, Shifters, Movements Along D
- Definitions: Substitutes, Complements, Inferior, Normal
- Why D Slopes Downward: Substitution and Income Effects
- Supply: Definition, Shifters, Movements Along S
- Movements Along the Curve Versus Curve Shifts: Change in QD vs. D,
Change in QS vs. S
Supply and Demand--Equilibrium and Applications
- Equilibrium: Definition, Shortages, Surpluses, Adjustments to Equilibrium
- Shortage = Excess Demand, Surplus = Excess Supply
- Changes in Equilibrium Price and Quantity: Changes in D, Changes in S, Simultaneous
Changes in D & S
- Price Controls: Price Floors, Price Ceilings, Examples, Effects on P, QS, and
QD
Elasticity
- 4 Different Types of Elasticity: Price Elasticity of Demand, Price Elasticity of Supply,
Cross Price Elasticity of Demand, Income Elasticity of Demand
- For ALL Elasticities: Definition, Ranges (Sign and Size of the Coefficient),
Interpretation, Explanation, Calculation, Elastic, Inelastic, Unit-Elastic, Perfectly
Elastic, Perfectly Inelastic
- Price Elasticity of Demand: Perfectly Elastic and Perfectly Inelastic Demand Curves
- Price Elasticity of Demand Along a Linear, Downward-Sloping Demand Curve: Ranges, Total
Revenue
- Determinants of the Price Elasticity of Demand and the Price Elasticity of Supply
- Cross-Price Elasticity of Demand: Substitutes, Complements, Unrelated Goods
- Income Elasticity of Demand: Inferior, Normal Goods, Necessities (Income Inelastic),
Luxuries (Income Elastic)
- Tax Incidence
Utility
- Definitions: Total Utility, Marginal Utility
- Consumer Theory: Helps Explain Demand, Assumptions about Consumer Behavior
- Diminishing Marginal Utility: Explanation, Implications for D, Paradox of Value
- Allocating Income Between Goods for Utility Maximization: MUX/PX =
MUY/PY
- Marginal Utility per Dollar
- Consumer Surplus
Short-Run Production and Costs
- Basic Definitions: Production Function, Long Run, Short Run, Firms, Implicit Costs,
Explicit Costs, Accounting Profit, Economic Profit, Normal Profit, Fixed Inputs, Variable
Inputs, Output
- SR Production: Total Product, Average Product, Marginal Product, Relationships Between
TP, AP, and MP
- Diminishing Marginal Returns: Definition, Explanation, Implications for TP, MP, & MC
- Cost: Formulas, Definitions, Calculations
- SR Costs: Total Cost, Total Fixed Cost, Total Variable Cost, Average Total Cost, Average
Fixed Cost, Average Variable Cost, Marginal Cost
- Relationships Between TC, TFC, TVC, ATC, AFC, AVC, MC, and Q
- TC = TFC + TVC, ATC = AFC + AVC
- Changes in Costs Curves from Change in the Prices of the Variable Inputs and from
Changes in the Prices of Fixed Inputs
- Graphs of Costs and Productions Curves
- Relationship Between Marginal and Averages--Apply to AP & MP, ATC & MC, AVC
& MC (Note: Does not apply to AFC)
Long-Run Production and Costs
- Long-Run Average Cost Curve
- Economies of Scale (Increasing Returns to Scale), Diseconomies of Scale (Decreasing
Returns to Scale), Constant Returns to Scale
- Long-Run Input Use: MPX/PX = MPY/PY
Perfect Competition--Basics
- Characteristics of Perfect Competition: Many Buyers and Sellers, Homogeneous (Identical)
Product, Free Entry and Exit, Firms Are Price Takers
- Firm: P = d = MR = AR
- Definitions: Marginal Revenue, Average Revenue
- Market Demand Versus Firm Demand
- Profit Maximization Condition: MR = MC (NOTE: this applies to EVERY firm regardless of
market structure)
Perfect Competition--Short Run
- Rule for Profit Maximization: MR = MC (APPLIES TO ALL FIRMS)
- Note: If MR > MC then the firm should increase Q, if MR < MC then the firm should
decrease Q (APPLIES TO ALL FIRMS)
- Loss Minimization: Shut-Down Point, Shut-Down Condition
- Economic Profits: P > ATC, Graph, Calculations
- Break-Even Point: P = ATC, Graph, Calculations, Minimum ATC
- Economic Losses: P < ATC, Graph, Calculations, Depends on AVC--if P > AVC then
produce and lose less than TFC, if P < AVC shut down and only lose TFC, if P =AVC then
you lose TFC regardless of whether you produce or shut down
- Firm's Short-run Supply Curve
- Industry Supply Curve
Perfect Competition--Long Run
- Rule for Profit Maximization: MR = MC
- Note: If MR > MC then the firm should increase Q, if MR < MC then the firm should
decrease Q
- Long-Run Equilibrium
- Long-Run Efficiency: P = MC (for the firm and in the market), Firm Produces at the
Minimum LRAC, LR Profits = 0
- LR Adjustments to Permanent Changes in Demand
- LR Industry Supply Curve: Constant-Cost Industry, (Increasing-Cost Industry,
Decreasing-Cost Industry)
Monopoly
- Characteristics
- Monopolist's Demand, Average Revenue, and Marginal Revenue Curves
- Profit Maximization: Produce the Q where MR = MC (if P > AVC), but Price According to
the Demand Curve
- Barriers to Entry: Natural Monopolies, Legal Monopolies
- SR Profit Maximization and Loss Minimization: Graphs, Shaded Areas, Calculations
- LR Profit Maximization
- Comparison of Q and P with a Perfectly Competitive Industry
- Efficiency?: P > MC so Allocatively Inefficient
Monopolistic Competition
- Characteristics
- D, MR
- SR Profit Maximization and Loss Minimization: Graphs
- LR Profit Maximization: Profits = 0 in the LR because of Free Entry and Exit
- Efficiency?: P > MC so Allocatively Inefficient
- Product Differentiation
Oligopoly
- Characteristics
- Mutual Interdependence
- Kinked-Demand Model
- Collusion and Cartels
- Price Leadership Model
- Non-Price Competition
General Imperfect Competition
- General Comparisons Between Perfect Competition and Imperfect Competition: D, MR, P
- Price Discrimination
- Efficiency
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