Econ 2610, Principles 1    Review Sheet #1      Dr. Usip

Coverage: Chapters 1, 2, 3, 5
Class #1

  1. What is the definition of economics?
  2. What is the difference between macroeconomics and microeconomics?
  3. What is the definition of the term scarcity?  Can you think of something that is not scarce?
  4. Why are most goods scarce?
  5. Be able to define the terms:  resources, land, labor, and capital.
  6. What is the cost-benefit principle?
  7. What are the three decision pitfalls to avoid when taking an action?
  8. What is an economic surplus?

Class #2

  1. What is the definition of the term opportunity cost?
  2. Assume you and a friend are watching a movie together.  Would the opportunity cost of watching the movie be the same for both of you?  Explain.
  3. What does a production possibilities frontier represent?
  4. What does a point inside the production possibilities frontier represent?  A point outside the frontier?
  5. Explain the difference between a situation where there are increasing opportunity costs and constant opportunity costs.  How would the shape of the production possibilities frontier differ in the two situations?
  6. What could cause the location of the frontier to change?  What does a movement from one point on the frontier to another point represent?
  7. How are the resource allocation questions answered by the following types of economic systems:  traditional economy, command system, and market economy.
  8. In the U.S. economy, which good are provided through a command system and which are provided by the market?
  9. Be able to distinguish between comparative advantage and absolute advantage. Be able to explain which one provides a better way to determine the basis for trade between individuals and nations.
  10. Be able to define the terms technical efficiency and allocative efficiency?
  11. Why would market capitalism, a system in which individual firms and consumers are free to make their own choices, result in technical efficiency and allocative efficiency?   Why is Adam Smith considered the father of modern economics?

Class #3

  1. Be able to define the term market?  What distinguishes an imperfectly competitive market from a purely competitive market?  Think of an example of a market that has imperfect competition, and be able to explain your choice.
  2. Be able to define the terms demand and quantity demanded.  What is the law of demand?
  3. What are the three ways to represent the demand for a good?
  4. What factors can change demand?  Can you think of an example of a market in which demand changed?  How would you represent the change graphically?
  5. Be able to define the terms:  normal good, inferior good, complement, substitute.
  6. What is the difference between a change in demand and a change in the quantity demanded?

Class #4

  1. Be able to define the terms supply and quantity supplied.  What is the law of supply?
  2. What are the three ways to represent the supply for a good?
  3. What factors can change supply?  Can you think of an example of a market in which supply changed?  How would you represent the change graphically?
  4. What is meant by the term equilibrium?  What does an economist mean when they say a market is in equilibrium?

Class #5

  1. What is meant by the terms excess supply and excess demand?  Can you think of a situation where there is excess demand in a market?  What do you think will happen to price in this case?  What will happen if there is excess supply in a market?
  2. Be able to show on a graph the equilibrium price and quantity.  Be able to indicate which prices would result in excess demand, and which ones would result in excess supply.   Given supply and demand functions, be able to solve for the equilibrium price and quantity.
  3. What is a price floor?  Would a price floor below the equilibrium price have an effect on the market?  If the price floor was above the equilibrium price what would happen?  Be able to show this situation graphically.
  4. What is a price ceiling?  Would a price ceiling above the equilibrium price have an effect on the market?  If the price floor was below the equilibrium price what would happen?  Be able to show this situation graphically.
  5. What is consumer surplus? Be able to explain how it is measured graphically and numerically..
  6. What is producer surplus? Be able to explain how it is measured graphically and numerically.
  7. What is economic surplus? Be able to explain how it is used to assess deadweight loss to the society resulting from price regulation by the government.

Class #6

  1. What does the elasticity of demand measure?  If you were told that the elasticity of demand was -2, and that the price of the good had risen 10 percent, what will happen to the quantity sold?
  2. Given a demand schedule, be able to calculate the elasticity of demand.
  3. What does the term perfectly elastic mean?  What does the demand curve look like in this case?
  4. What does the term perfectly inelastic mean?  What does the demand curve look like in this case?
  5. Be able to define the terms: elastic, inelastic, and unit elastic.
  6. If price rises, and we are in the inelastic region of the demand curve, what will happen to total expenditures on the good?  How is it that an increase in the price of the good could either cause total expenditures to rise or fall?  What will happen if we are in the elastic region of the demand curve?

Class #7

  1. What factors will cause the demand for a good to be more elastic?  Do you think the demand for automobiles will be more elastic than the demand for tennis racquets?   Explain.
  2. What does income elasticity measure?  What does it mean if the income elasticity is positive?  Negative?  What is the difference between economic necessities and economic luxuries?
  3. What does the cross price elasticity measure?  What category do the goods fall into if the cross-price elasticity is negative?  Positive?
  4. What does the elasticity of supply measure?  What factors will cause the supply of a good to be more elastic?

Class #8

  1. What does the budget contraint represent?
  2. What does the vertical intercept of the budget constraint represent?  The horizontal intercept?  If you were told that the slope of the budget line was -3, what would that tell you about the prices of the two goods and the tradeoffs available to the consumer?
  3. What will happen to the budget constraint when the consumer's income changes?  When the price of one of the goods changes?  What would happen if the prices of both goods and the consumer's income doubles.
  4. What is meant by the term utility?  Marginal utility?  Be able to explain the logic behind the law of diminishing marginal utility?

Class #9

  1. What is the utility-maximizing rule?  If MUX/PX > MUY/PY, what should the consumer do?
  2. Be able to define the terms substitution effect and income effect.  In the case of normal goods, how do the income and substitutions effects support the law of demand?

 

Top or Back to Links & News or Home page