Review for ECO 155

Test #1

Economics students often do worse on exams than they had expected. To prevent this, you should spend many, many hours preparing for this test. Students are expected to read & understand their book & class notes. Students should also review the relevant questions contained on the comprehensive finals from the spring & fall of 1997 (Don't spend too much time with the old exams; use them only to provide feedback about how well your studying is progressing). Here is a checklist containing most of the topics you should have mastered:

• Economics defined; macro vs. micro
• Models & abstraction
• Scarcity & choice
• Opportunity costs
• Marginal analysis & economic decision making
• What are fixed costs? Why are they irrelevant to decision making?
• Institutions
• Factors of production
• Three Economic questions
• Efficiency criteria
• Allocative mechanisms
• PPF
• assumptions
• On, inside, & outside the PPF
• Effect of scarcity
• Effect of specialized resources
• Meaning of the absolute value of the slope
• What causes it to shift
• Trade-off between current and future consumption (producing consumer goods or capital goods)
• Comparative advantage and trade
• Demand: definition & law of
• Quantity demanded
• Shifters
• Substitutes vs. complements
• Normal vs inferior goods
• Income & substitution effects
• Supply: definition & law of
• Quantity supplied
• Shifters
• The Smooth Market Maxim
• Adam Smith and the Invisible Hand
• Equilibrium
• Surpluses, shortages & how they are eliminated.
• Disequilibrium; price floors & ceilings
• Changes in equilibrium; shifting both curves at once
• Consumer Sovereignty
• Business Structures
• Households, Government, and the Global Economic Setting
• Consumer and Producer Surplus
• Market Failure & Government’s role in the economy