Microeconomics Final Exam

This chart outlines what is on the final. It includes all topics, principles, terms and graphs that may be on the final exam. If it is not here it is not on the final. Graphs marked with $$ are shown in a separate review document. There is also a set of study questions.

Important concepts/ topics

What you need to know re Graph

Other Terms to define

· Opportunity costs/ scarcity/

· no free lunch;

· productive efficiency

· allocative efficiency

· growth

Production poss curve (PPC) to show opp cost of increasing output of one good, change in allocation (what is produced); inefficient output combo

Resources (factors of production) capital, labor & human capital, allocation

· Law of demand / supply)

· shift of demand (or supply);

· shortage or surplus;

· price ceiling (or floor);

· rational choice based on marginal cost / marginal cost

Market model: supply and demand; show shift in D or S, shortage/surplus; change in equil p and Q $$

Price signal; incentive

· Consumer sovereignty;

· business types

Show how a short run change in price will lead to long run change in supply, price and output

Long run vs short run;

· Price Elasticity of demand

· change in revenue related to price elasticity of demand;

· determinants of price elasticity

Given 2 demand or supply curves that cross at a pt – explain which is more elastic; given a price change, show change in revenue on graph.$$

Elastic; inelastic;

income effect; substitution effect

Diminishing marginal utility;

consumer choice principle

consumer equilibrium

the equi-marginal principle;

No utility graphs on final, but you will need to compute marginal and total utility from a chart

Utility , marginal utility; bounded rationality

Diminishing marginal returns; marginal cost; Economies/diseconomies of scale

Identify MC and ATC curves and their relation to each other.

TC,FC, VC, MC, ATC,

Profit maximizing rule for competitive and other producers; shutdown choice;

allocative or productive efficiency;

short run supply

normal profit in long run;

Competitive market: given price (=MR), MC and ATC, show profit max output, total profit, average profit; use AVar cost to determine whether firm will shutdown

Price taker, price maker; Shut down vs exit; Profit, MR, normal returns; economic vs accounting profits; implicit vs explicit costs

Market structures/characteristics

barrier to entry

product differentiation

market power

Marginal revenue;

Producer/consumer surplus;

deadweight loss;

price discrimination outcome;

Identify demand and MR for monopolist; show profit max output, price, for monop and DWLoss to economy$$ ; compare competitive and monop ouput (if MC of monop is supply of compet producers

Govt barriers - Patent, copyright; license; control of retail mkt or input

Product differentiation effect on market power and supply;

Collusive/cooperative strategy;

nash equilibrium;

rivalry strategy

Kinked demand$$; show effect of prod diff, entry and long run out come in Mon comp

Interdependence of oligop; concentraton measures; Brand loyalty; rivalry; game theory; nash equilibrium; price leadership;cartel

Natural monopoly regulation (targets/incentives); market power correction – antitrust – behavioral and structural corrections

Natural monopoly graph (ATC with very large EOS)$$

Sherman and clayton act; exclusive dealing , predatory pricing; price fixing; natural monopoly; MES

Externality; asymmetric information – adverse selection, moral hazard; public goods problem; ownership of commons problem;

Use S and D to Show inefficient output with extermalities (production or consumption) ; use S and d to show assym information and adverse selction problem$$

Free rider; production/ consumption externality; social and private cost or benefits