Principles of Economics - Study Guide for Exam 1 | ECO 105.00, Study notes of Microeconomics

Download Principles of Economics - Study Guide for Exam 1 | ECO 105.00 and more Study notes Microeconomics in PDF only on Docsity! ECO 105 Study Guide for Exam #1 Chapter 1 1. Be able to discuss the relationship between unlimited wants, limited resources, and the fundamental economic problem of scarcity. 2. List and define the five resource categories (factors of production) discussed in class. 3. Explain the purpose of the Production Possibilities Frontier (PPF) model. What economic problem does it illustrate and what are the major implications of the PPF? Also, what assumptions are made in constructing the PPF? 4. Define the concept of “opportunity cost” and explain the “law of increasing opportunity cost,” in the context of the PPF. 5. Be able to discuss such concepts as economic efficiency (productive and allocative), unemployment, capital accumulation, technological advance, and economic growth in the context of the PPF, i.e., in terms of points on the PPF, inside the PPF, and beyond the PPF. 6. Assume you are the President’s chief economic advisor. Considering the factors that influence an economy’s production possibilities, what policy (or policies) would you recommend to the President as the best means to improve the economy’s level of output? Why? Chapter 2 1. Explain what is meant by the term “comparative advantage.” For the simple two-person (or two- country)/two-goods case be able to determine who has a comparative advantage in the production of each good and be able to determine mutually beneficial terms of trade. 2. Explain how comparative advantage, specialization, and mutually beneficial exchange can affect the amount of two goods that individuals can consume relative to their respective PPFs. By specializing and trading, can individuals produce a combination of goods that lies beyond their PPF? Why or why not? 3. Discuss the advantages and disadvantages of specialization in production. Chapter 3 1. Define the concept of demand and explain, on an intuitive level, why the demand curve for a good is downward sloping. 2. What are the “income effect” and the “substitution effect?” How do they explain the downward- sloping demand curve? 3. List the determinants of demand. How does a change in each of the determinants of demand affect the demand curve? 4. Distinguish between “a change in demand” and “a change in quantity demanded.” What are the causes of each type of change and how do we illustrate them graphically? 5. Define the concept of supply and explain, on an intuitive level, why the supply curve is upward sloping. 6. List the determinants of supply. How does a change in each of the determinants of supply affect the supply curve? 7. Distinguish between “a change in supply” and “a change in quantity supplied.” What are the causes of each type of change and how do we show them graphically? 8. Be able to determine equilibrium price and quantity for a given pair of supply and demand curves. 9. Describe the changes that would occur in a market if the current market price is not at the equilibrium level (i.e., explain how the market would adjust to equilibrium). 10. Be able to analyze the effects of changes in specific determinants of supply or demand on equilibrium price and quantity. 11. Be able to analyze the effects of a simultaneous change in the demand for and supply of a good. Be sure to be able to determine what you can and cannot say, with certainty, about changes in equilibrium price and quantity for each of the following cases: C a simultaneous increase in supply and demand C a simultaneous decrease in supply and demand C a simultaneous increase in supply and decrease in demand C a simultaneous decrease in supply and increase in demand Chapter 4 1. Be able to define consumers’ surplus. 2. Be able to define producers’ surplus. 3. Using the concepts of consumers’ and producers’ surplus, be able to graphically illustrate the net gains from production and consumption of a good. 4. List and describe the conditions necessary for a market-determined equilibrium to be economically efficient. 5. Using the concepts of consumers’ and producers’ surplus, explain why the market-determined equilibrium maximizes social welfare when all of the conditions for an efficient outcome are met. 6. Distinguish between a price ceiling and price floor.