Principles of Microeconomics Review for final exam

Economics 200 Spring 2010

Note: This is just a list of broad topics to know for the final exam; it does not include all
the specific things you should know about all of the topics. Some items have been
crossed out. Questions about those specific items will not be on the exam. The chapters
(and specific pages, in some cases) are listed below.
There will be 15 multiple-choice questions and 7 short-answer questions on the final
exam.

Chapters 1
- What is economics?
- positive vs. normative analysis
- people are rational
- people respond to incentives
- optimal decisions made at the margin
- ceteris paribus
- microeconomics vs. macroeconomics
- appendix: slopes, positive vs. negative relationships, etc.

Chapter 2
- circular flow
- opportunity cost
- PPF: efficient, inefficient, unattainable
- increasing (marginal) opportunity cost
- economic growth
- absolute advantage
- comparative advantage
- specialization
- terms of trade

Chapters 3 and 4
- law of demand: why does it hold?
- change in quantity demanded vs. change in demand
- determinants of demand
- law of supply
- change in quantity supplied vs. change in supply
- determinants of supply
- equilibrium price and quantity
- surplus
- shortage
- consumer surplus
- producer surplus
- economic surplus
- deadweight loss
- price controls: ceilings and floors
Chapter 6
- price elasticity of demand: total revenue and elasticity
- demand: perfectly elastic, elastic, unit elastic, inelastic, perfectly inelastic
- cross elasticity of demand: complements, substitutes or unrelated
- income elasticity of demand: normal (necessity or luxury) or inferior
- price elasticity of supply
- supply: perfectly elastic, elastic, unit elastic, inelastic, perfectly inelastic
- What makes demand/supply more or less elastic?
- tax burden and elasticity (chapter 4 pp. 112-117)

Chapter 10
- economic profit vs. accounting profit: explicit cost, implicit cost, normal profit
- fixed input
- variable input
- short run vs. long run
- average product, marginal product (diminishing marginal product)
- total cost, variable cost, fixed cost
- average total cost, average variable cost, average fixed cost, marginal cost
- average-marginal rule

Chapter 11
- market structure
- average revenue, marginal revenue
- characteristics of perfect competition
- profit maximizing condition: find quantity, price, profit
- allocative efficiency
- firm’s short run supply curve
- shutdown point
- productive efficiency
- long-run equilibrium
- market long run supply curve in constant-cost industry

Chapter 12
- characteristics of monopolistic competition
- excess capacity
- long-run equilibrium
- efficiency: DWL
- marketing

Chapter 13
- characteristics of oligopoly
- 4-firm concentration ratio
- game theory:
o duopoly game
o prisoner’s dilemma
o cooperative and noncooperative equilibria
o dominant strategy
 o Nash equilibrium
o cartels
- Five competitive forces model

Chapter 14 and pp. 496-505

- characteristics of monopoly
- types of barriers to entry
- efficiency: deadweight loss
- natural monopoly
- types of regulation
o marginal cost pricing
o average cost pricing
o output regulation
- motives behind regulation
o private interest theory
o public interest theory
o public choice theory
- antitrust laws
- price discrimination: perfect, 2nd degree and 3rd degree – just know what ‘price
discrimination’ is
- characteristics necessary for successful price discrimination

Hubbard ch. 5 and ch. 17 pp. 558-567

- market failure
- efficient quantity (where MSC = MSB)
- market quantity (where MPC = MPB)
- externalities: positive and negative
- external costs and external benefits
- correcting the market failure from an externality: persuasion, taxes, subsidies,
Coase Theorem versus regulation (command-and-control, market-based
approaches)
- public goods, common resources, quasi-public goods, private goods
- free rider problem
- asymmetric information: causes & solutions
- hidden characteristic - adverse selection
- hidden action - moral hazard: principal-agent problem

Hubbard ch. 9 (Note: we did not cover pp. 291-300 but we did cover the appendix)
- total vs. marginal utility
- diminishing marginal utility
- utility-maximizing condition
- budget constraint
- indifference curve
- substitution effect (relative prices) vs. income effect (real income)
- demand and indifference curves
Hubbard ch. 16 (only pp. 522 – 531)
- derived demand
- marginal revenue product (MRP)
- market labor demand
- shifts in market demand for labor
- individual labor supply decision: substitution effect vs. income effect
- shifts in market supply of labor