Basic Economics

Exam Review
Chapters 5, 6

Know the following terms and/or concepts:

Chapter 5
1. Price elasticity of demand
2. Midpoints formula
3. Price elasticities of demand (elastic; inelastic; unitary elastic; perfectly elastic; perfectly inelastic) and their
effect on total revenues.
4. Know the other elasticity measures: Income elasticity of demand; Cross-elasticity of demand; Price
elasticity of supply.
5. Price elasticity of demand variations along a straight-line, downward-sloping demand curve.
6. The determinants of price elasticity of demand
Chapter 6
1. Explicit costs; Implicit costs
2. Economic vs. Accounting profit
3. What is a “Normal Profit”
4. Short run vs. long run
5. Fixed input vs. variable input
6. The Production Function.
7. Marginal product
8. The Law of Diminishing Returns
9. Total costs and curves: total fixed cost; total variable cost; total cost
10. Average costs and curves: average fixed cost; average variable cost; average total cost (Exhibit 3)
11. Marginal cost.
12. The Marginal Average Rule
13. Long-run production costs. (SRATC; LRAC)
14. Economies of scale; constant returns to scale; diseconomies of scale