Microeconomics Exam 1 Study Guide - Fall 2019 PDF

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Microeconomics Exam 1 Study Guide – Fall 2019 Due at Exam 1 Name:_______________________________ Instructions: Answer all questions thoroughly and completely. Use your own words whenever possible. Provide a graph where appropriate. Key Topic Areas (Text Chapters 1-3) Chapter One: Limits, Alternatives, and Choices  Define economics.  What is the difference between microeconomics and macroeconomics?  Positive vs. normative economics.  What is the economizing problem? (Answer: we have unlimited wants, but limited resources)  Concept of utility.  Define economic resources – What are the four?  Define marginal analysis.  Concepts of scarcity and choice.  What do economists mean by full employment and full production?  Production possibilities frontier (curve). What is it? How is it derived? What does it illustrate?  Know all of the terms and concepts listed in Chapter One, Page 18. Chapter Two: The Market System and the Circular Flow  What is the significance of Adam Smith? What were his major contributions to economic thought?  What do the terms “laissez-faire”, invisible hand”, and “ceteris paribus” mean?  What are the Five Economic Systems we discussed in class?  What is a market and why is it important?  What are the characteristics needed for a Free-market or Capitalist System?  Introduction to the circular flow model of the economy.  What role does government (public sector) play? The private sector (households and businesses)? How do both fit into the circular flow model?  How would we expand the circular flow model to include the public sector?  How would we expand the circular flow model to include the global economy?  Know all of the terms and concepts listed in Chapter Two, Page 43. Chapter Three: Demand, Supply, and the Market Equilibrium 1

 Concepts of supply and demand. What is supply and demand? What impacts? What effects help explain the demand and supply curves? Why are the curves shaped this way (inverse relationship vs. direct relationship)?  The Demand Curve is downward sloping for four reasons: (1) The Law of Demand, (2) The Income Effect, (3) The Substitution Effect and (4) The Law of Diminishing Marginal Utility. What do these mean?  The Supply is upward sloping for one reason: The Law of Supply. What does this mean?  How do changes in supply and demand affect equilibrium price and quantity? Be able to graphically show these changes. When do we have surpluses or shortages?  What is the difference between a change in demand (or supply) and a change in the quantity demanded (or supplied)?  Define Demand Shifters: (1) Tastes and Preferences, (2) the Number of Consumers in the Market, (3) The Money Income of Consumers, (4) Prices of Related Goods, and (5) Consumer Expectations.  Define Supply Shifters: (1) resource Prices, (2) Technology, (3) Taxes and Subsidies, (4) Prices of Other Goods, (5) Producer Expectations, and (6) the Number of Sellers in the Market  In terms of supply and demand, why do we say that at equilibrium the market is “market clearing”?  Understand disequilibrium prices. What are price floors and price ceilings? Be able to graphically and narratively explain.  Know all of the terms and concepts listed in Chapter Three, Page 65.

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