Topics for Microeconomics: Exam I
Fall 2005
Friday, October 14
Chapters: 1-4, 7, 10, 11
I. Introduction to Economics
A. Specialization, self-interest, global interdependence
B. Central questions
C. Economic Systems
II Scarcity and Opportunity cost
A. trade-offs and efficiency
B. production possibilities curve
i. constant marginal cost
ii. increasing marginal cost
C. Growth
III. The Market System
A. Advantages of trade
1. comparative advantage
2. efficient
3. both parties gain
B. Demand
1. relation between price and quantity demanded
2. preferences, income, complements, substitutes, number of consumers
3. increase in demand (shift to right)
4. decrease in demand (shift to left)
5. Shifts in demand vs. changes in quantity demanded
C. Supply
1 relation between price and quantity supplied
2. costs of production, number of producers
3. increase in supply (shift to right)
4. decrease in supply (shift to left)
5.shifts in supply vs. changes in quantity supplied
D. Demand and Supply
1. finding equilibrium price and quantity
2. effects of changes in supply or demand
E. The social value of markets
1. consumer surplus
2. producer surplus
3. optimal market outcome
4. deadweight loss
IV. The Role of Government
A. Institutional Framework for markets
1. legal system
2. system of standards
3. monetary system
B. Address market failure
1. Externalities
a. negative
i. price too low, quantity too
high
ii. too much pollution
iii. policy
b. positive
i. quantity too low
ii. policy
2. Monopoly
a. price too high, quantity too low
b. policy
i. antitrust
ii. regulation
iii.public ownership
3. The problem of public goods
a. non-rival and non-excludable
b. private markets won't provide
an efficient amount
c. quasi-public goods
i. open
access resources (overuse)
ii. excludable
public goods (quantity too low)
d. Policy