ECON FINAL STUDY GUIDE

Midterms One and Two (40% of Exam)

Chapter One

Opportunity costs:
Total costs:

Chapter Two

Comparative advantage:
PPF Definition:
o Trade-offs:
o Scarcity:
o Opportunity Cost:
Graph

Increasing Relative Cost:

Constant Relative Cost:
Innovation:

Chapter Three

Surpluses and shortages and pressure on prices:

Demand Shifts

Supply Shifts

Chapter Four

Elasticity Definition:
Graphs

Income:
Demand:
Cross-price:
Perfectly Elastic vs. Perfectly Inelastic:
o Graph

Demand Curve Graph

o Inelastic
o Elastic

Formulas for Elasticity:

o Demand

Income

Cross-price

Chapter Five

Price
o
o
o

Ceilings
Binding Price Ceiling
Nonbinding Price Ceiling
Effects

Price
o
o
o

Floors
Binding Price Floors
Nonbinding Price Floors
Effects

Chapter Six

Social Welfare Defintion:

Chapter Eight

TFC
TVC
TC
AVC
AFC
ATC
MC
Graphs

Implicit Costs
Explicit Costs
Accounting Profit
Economic Profit

Chapter Nine

Shutdown vs Operate Decision Criteria

Short Run vs. Long Run Equilibrium Graphs

Profit and Loss

Graph

Four Characteristics of a Perfectly Competitive Markets

Chapter Ten

Profit Maximization for a Monopolist

Four Characteristics of Monopolies

Chapter Eleven

Welfare Effects of Perfect Price Discrimination

o Who gets all the surplus?

New Material (60% of Exam)

Chapter Seven

Internal Cost/Benefit
External Cost/Benefit
Social Cost/Benefit
Positive Externalities
o Graph

Solutions

Negative Externalities
o Graph

Solutions

Tragedy of the commons

Public Goods
o Why not private supply of public goods?

Property Rights
Coase Theorem
o Cause of Positive Externalities
o

Cause of Negative Externalities

Social Optimum vs. Market Equilibrium

o Which is preferred and why?

Strategies the government can use to restore social optimum

o Positive Externality
o Negative Externality

Chapter Fourteen

Labor Supply Curve

o Graphs
o Income effect dominating substitution effect

Substitution effect dominating income effect

Fixed quantity of labor willing to work per week no matter the wage

Income versus substitution effect

Equilibrium wage

How many workers does the firm hire? (table)

Labor Supply
o Income effect vs. substitution effect definition

Chapter Sixteen

Diminishing Marginal Utility

Properties of Indifference Curves

Marginal Rate of Substitution

Utility Maximization
o Using the Graph

Using the Table

Consumer Optimum

Finding the combination of goods that maximizes utility both graphically and
in table form

Income effect vs. Substitution Effect Problem

o Income and Substitution effects definitions

Problem