Dr. Reed Olsen - Review
Economics 165
Final Exam
Subjects Covered
# of Questions
Text Chapter
Introduction terminology and economic systems 2 1 & 2
PPF Model the production posibility model 2 2
Supply & Demand Demand and Supply basics 3 3
Demand and Supply equilibrium and applications 2 4
Elasticity Def of 4 types, coefficient interpretation, tax incidence, and elasticity and TR 2 5
Utility Definitions, MU, TU max, consumer surplus 2 6
Short-Run Production
and Costs
basic definitions (LR vs SR, firms, costs,
profits, etc)
1 7
TP, MP, AP (and relationship to cost curves), diminishing returns, etc. 3 8
Long-Run Production
and Costs
long-run profit maximization, long-run average costs (economies of scale, etc) 1 8
Perfect Competition Basics (firm and market D, MR, etc) 2
short-run profit max., loss minimization, firm S, and industry S 2
long-run equilibrium, S, efficiency 2
Imperfect Competition monopoly (SR, LR, comparison to competition, efficiency, regulation, antitrust) 2 10
monopolistic competition (definition, short-run, long-run) 2 11
oligopoly markets (definition, kinked D, cartel, price leader, non-price comp., etc.) 2
general imperfect comp. (efficiency, price disc, MR, P, D). 2 10-11
 Antitrust & Regulation antritrust laws, laws in action 1 12
why regulate? three theories 1 12
Factor Markets Definitions and profit maximization 2 13
factor demand and optimal resource use in competitive markets 2
optimal resource use in non-competitive markets 2 14
Total 40 1-11,
& 21

Final Exam Review

(1) Introduction
- What is Economics?
- Basic Economic Questions.
- Definition of Terms.
- opportunity cost
- scarcity.
- efficiency.
- etc.
(2) Production Possibility Model.
- what does the model show and how?
- how does the frontier shift and why?
(3) Supply and Demand.
- What is Demand?
- change in Qd vs. D.
- What shifts D?
- What is Supply?
- change in Qs vs. S.
- What shifts S?
- Equilibrium
- Predictions. What happens to P & Q with different shifts?
(4) Elasticity
- Definition of 4 different types
- Price Elasticity of Demand (n)
- Price Elasticity of Supply (ns)
- Income Elasticity of Demand (ny)
- Cross Elasticity of Demand (nx,y)
- Interpretation of size and sign of the elasticity coefficient for each type of elasticity.
- Total Revenue and price elasticity of Demand.
(5) Consumer Choice
- Total and Marginal Utility
- How do you maximize Total Utility? The rule of equal marginal utilities per dollar spent.
- law of diminishing marginal utility.
- Consumer Surplus.
- Derivation of Demand curves from Utility analysis.

(6) Short-Run Production and Costs

- Basic Definitions and Firm structure.
- Short-Run Production.
- define TPPL, MPPL, and APPL plus relationship between the three curves.
- law of diminishing marginal returns (may be stated differently so be careful and get the concept down).
- Short-Run Costs.
- Definitions, totals, averages, marginals.
- TC = TVC + TFC
- MC = (Change in TC)/(Change in Q) = (Change in TVC)/(change in Q)
- relationship between production and costs (for example, MC and MPPL)
- know the graphs and be able to show relationships.
(7) Long-Run Production and Costs.
- Least Cost Production. How do Firms produce at least cost? Impact of changes in various factors on the use of resources?
- Long Run Average Cost Curve.
- Economies of Scale, Diseconomies of Scale, Constant Returns to Scale.
(8) Perfect Competition.
- Characteristics of P.C. firms?
- Demand for P.C. firms?
- How do firms maximize profits?
- produce where MR=MC unless P < AVC (what should they do if this is true?)
- profit maximization graphically.
- the long-run in P.C. markets.
- profit = 0?
- entry/exit?
- Industry Supply (how does it change for increasing, decreasing, and constant cost industries?)
- Technological Efficiency.
- Allocative Efficiency occurs when MSB = MSC which is the same as P = MC.
- Make sure you keep profit maximization and allocative efficiency straight. They aren't the same.
(9) Imperfect Competition
- Monopoly
- characteristics
- Demand for monopoly firm.
- Graphs.
- profit maximization again MR = MC. What is P, Q, and profit?
- the long-run in monopoly markets. Barriers to entry.
- Efficiency. Is P=MC (MSB=MSC)? Technological also.
- Monopolistic Competition
- Characteristics (Product Differentiation)
- Demand for the firm.
- Graphs.
- profit maximization (MR=MC).
- long-run - Is entry possible? Are positive profits possible?
- Efficiency
- Allocative - P>MC or MSB > MSC.
- Technological
- Oligopoly
- Characteristics
- Mutual Interdependence of Firms
- profit maximization (MR=MC again).
- Models
- Collusion (Cartels or Joint profit max.)
- Game Theory
- Entry Barriers
- Efficiency both allocative (is P=MC?) and technological.
- Antitrust and Regulation
- Major Anti-trust laws (not details, just general overview)
- The court's approach to interpreting antitrust laws
- the rule of reason doctrine (approach)
- the per se doctrine
- Why have regulation?  Three theories
- The public interest theory
- The capture theory
- Public Choice theory
- For each theory focus on who benefits from the regulation according to the theory
(10) Factor Markets (applies to all resources not just labor.)
- Why do individuals supply labor? (very few questions on this topic.)
- what affects labor supply?
- Why do Firms demand labor?
- Demand for labor is a derived demand from demand for the firm's output.
- what affects labor demand?
- Definitions
- MRPL, VMPL, MFC, wage, monopsony, etc.
- Four Market Scenarios (know the graphs).
- Output market perfectly competitive and labor market perfectly competitive.
- Output market perfectly competitive and labor market monopsony.
- Output market monopoly and labor market perfectly competitive.
- Output market monopoly and labor market monopsony.
- all profit maximizing firms hire labor where MRPL equals MFC.
- for some, though, MRPL = VMP (which ones?)
- for some, though, MFC = SL = market wage (which ones?)

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