Microeconomics ECON 2302 May 2009 Marilyn Spencer, Ph.D. Professor of Economics Review: Chapters 1 - 6

Exam 1, May 20 4 Chapters 1 – 6 ÜStudy PPT slides ÜStudy assigned end-of-chapter questions ÜStudy with a friend 4 Test format: ÜShort answer questions, problem solving, graphing & a few multiple choice ÜQuestions include definitions, theory & applications – Expect graphing and tables of numbers. Ü75 minutes

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. Learning Objectives from Chapter 1 - You should now be able to:

Chapter 1 MAJOR TOPICS  Rational behavior  Positive & normative analysis  Scarcity

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. Learning Objectives from Chapter 2 - You should now be able to:

Chapter 2 MAJOR TOPICS  Production possibilities frontier  Opportunity cost  Marginal opportunity cost  Trade-offs  Comparative advantage  Circular flow of income model

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. Learning Objectives from Chapter 3 - You should now be able to:

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.Identify examples of positive and negative externalities and use graphs to show how externalities affect economic efficiency. 2.Discuss the Coase theorem and explain how private bargaining can lead to economic efficiency in a market with an externality. 3.Analyze government policies to achieve economic efficiency in a market with an externality. 4.Explain how goods can be categorized on the basis of whether they are rival and excludable. 5.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

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. Learning Objectives from Chapter 6 - You should now be able to:

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: 4 Read Ch. 8, and be able to answer ÜReview Questions: pp , 2.1 & 2.2; p. 271, 3.1 & 3.3; p. 273, 4.1 & 4.2; p. 275, ; (1 st edition: 2, 3, 4, 6, 7, 9, 10, 11 & 12 on p. 259), and ÜProblems and Applications: p. 271, 2.3 & 2.5; p. 272, 3.7 & 3.12; p. 274, 4.10 (1 st edition: 3, & 19 on pp ).