Your exam will have 100 multiple choice questions covering the material presented in the course.
In addition to looking again at the reviews for the 3 major exams, telecourse guide “Practice Test” questions, “Concepts for Review” and questions at the end of the chapters in the textbook , be sure to study the following:
1. The difference between macro and microeconomics.
2. The definition of economics and why choices have to be made.
3. Opportunity cost. How to figure it from a production possibilities table.
4. The relationship between saving and investing in capital goods and economic growth.
5. What it means to have a comparative advantage in the production of some thing.
6. Demand. Definition, law of demand, determinants of demand. Don’t confuse a change in quantity demanded and a change in demand.
7. Supply. Definition, law of supply, determinants of supply. Understand the difference between a change in quantity supplied and a change in supply.
8. How to read a graph of supply and demand to find the market clearing price. See how a higher price results in a surplus, a lower price results in a shortage. How a change in demand or supply results in a change in market price.
9. What a price floor and a price ceiling are and what they typically cause.
10. Elasticity of demand. What price elasticity measures. Relate elasticity of demand to the direction of a change in total revenue when price changes in a given direction.
11. Elasticity of supply. What it measures. What a perfectly elastic supply curve looks like.
12. Diminishing marginal utility. What it says. Relate to law of demand. Relate to how newspaper vending machines operate.
13. Assumed goal or primary objective of the firm.
14. The difference between short run and long run.
15. What a production function looks like. What marginal product is and how it changes as output increases.
16. The definitions of total cost, fixed cost, variable cost, average total, average variable, average fixed, and marginal cost. How these costs change as output changes.
17. What the law of diminishing returns or diminishing marginal returns says and how that relates to cost of production.
18. What a graph of average total cost, average variable cost, and marginal cost looks like. Why marginal cost is below an average cost when the average is falling and above the average cost when average is rising – and that marginal cost will always be equal to the average cost at the minimum point on the average cost.
19. The assumptions or characteristics of perfect competition.
20. Marginal analysis for finding the profit maximizing quantity for a firm to produce (where marginal revenue is equal to marginal cost).
21. In perfect competition the firm faces a perfectly elastic share of demand at the market price. This makes marginal revenue equal to the price at all quantities. Given a graph of average total cost, average variable cost and marginal cost, for different prices be able to tell the profit maximizing or loss minimizing thing for the firm to do. Remember that the short run supply curve for a firm is perfect competition – for prices above minimum average variable cost – is the marginal cost curve.
22. Where long run equilibrium is for a firm in perfect competition. Note why the price will equal minimum average total cost and marginal cost, and the quantity will be at minimum average total cost (most efficient level of output)
23. The definition of pure monopoly.
24. The monopoly faces market demand which is not perfectly elastic. When demand slopes downward, marginal revenue will be below demand (below price at quantities greater than one).
25. Use marginal analysis to find the profit maximizing quantity for the monopoly and be able to do this using a graph of average total cost, marginal cost, demand and marginal revenue.
26. Understand that a monopoly restricts output in order to charge a high price and make excess profits. This causes fewer resources to be used – a misallocation of resources.
27. Understand what barriers to entry are and how they are important to monopoly.
28. The definition of monopolistic competition or characteristics of that market structure.
29. What would typically be true about the elasticity of demand for a monopolistic competitor compared to the demand faced by a firm in perfect competition.
30. How the firm in monopolistic competition maximizes profits using marginal analysis and, like monopoly, price will exceed marginal revenue.
31. How monopolistic competition gets to long run equilibrium where, like perfect competition, there would be no economic profits, but price would be higher and output would be lower than in perfect competition.
32. The definition and characteristics of oligopoly. What interdependence means.
33. What a concentration ratio measures.
34. Be familiar with the “kinked demand curve” theory of oligopoly as well as the game theory approach to explaining pricing behavior and the tendency towards collusion or anti-competitive behavior in oligopoly.
35. Know what the “capture theory” of regulation refers to.
36. What a natural monopoly is and understand why it might not be a good idea to break up such a monopoly.
37. Remember that the Sherman Anti-Trust Act of 1890 is the primary anti-trust statute in the U.S.
Note that most of the following relates to material covered after the third exam.
38. Know the definition of marginal product. How to figure a worker’s marginal product. What marginal revenue product is. The marginal analysis for determining the profit maximizing number of workers to hire in a competitive market.
39. Understand the idea of derived demand or that the demand for a resource comes from the demand for the finished product the resource helps to make. If there is a change in the demand for the product, there will be a change in the demand for the resource.
40. From the marginal analysis for the profit maximizing hiring decision, see that the marginal revenue product of labor curve would be the demand curve for labor. Anything that changes the marginal product of labor or the price of the product will change the demand for labor.
41. The elasticity of demand for labor (same as how fast the MRP of labor drops) depends on the elasticity of demand for the finished product, how severe the diminishing returns are, and whether or not there is a substitute for labor.
42. Know what the supply of labor typically looks like and depends on. Remember the difference between a change in supply and the law of supply. In the short run a higher wage paid for computer programmers might get a larger quantity supplied to the firm, but that is different from an increase in the supply of programmers.
43. The definition of economic rent. That the supply of the resource must be perfectly inelastic if economic rent is received.
44. Define interest in terms of a payment received by owners of physical capital.
45. Know what an “externality” is and things that can be done to internalize an externality.
46. Know what is meant by “a merit good” and a “demerit good”.
47. Know what the “marginal tax rate” means.
48. Know what comparative advantage is and how trading partners benefit from specializing and trading based on it.
49. Understand what the “infant industry” argument suggests about free trade.
50. Understand the marginal benefit vs. marginal cost approach to determining the “optimal level of pollution”.
51. Know what the Lorenze Curve measures.
52. Recognize things that would have an impact on a persons marginal productivity. What is “human capital”? How are wages usually affected by investment in human capital?
53. What is meant by “relative poverty”? Is it true that it will always be with us?
54. Throughout the exam remember that resources are limited and wants are infinite. Remember about opportunity cost.
Good luck and best wishes in your pursuit of knowledge.