Review for Midterm 1
Macroeconomics 105
Instructor: Shana M. McDermott
Fall 2013
Chapter 1: Economics: Foundations and Models
Key Terms
Allocative Efficiency
Centrally Planned economy
Economic model
Economic Variable
Economics
Equity
Macroeconomics
Microeconomics
Marginal Analysis
Market
Market Economy
Mixed Economy
Normative Analysis
Opportunity Cost
Positive Analysis
Productive Efficiency
Scarcity
Trade-Off
Concepts
 Optimal decisions are made at the margin.
 People are rational and respond to incentives.
 Know different types of analysis, positive, normative.
 Know the difference between allocative/productive efficiency.
 Appendix- know how to graph, find slopes, areas of a triangle/rectangle.
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
Key Terms
Absolute Advantage
Circular-flow diagram
Comparative Advantage
Economic Growth
Entrepreneur
Factor Markets
Factors of Production
Free Market
Market
Opportunity cost
Production markets
Production Possibilities Frontier (PPF)
Property rights
Scarcity
Trade
Concepts
 Be able to explain opportunity costs.
 Be able to graph PPF.
 Be able to find comparative advantage (slopes) and show the trade-offs.
 Be able to explain increasing opportunity costs.
 Show economic growth on the PPF (shift out of PPF, can sometimes just pivot).
 Find the gains from trade.
 Be able to show and describe how the circular-flow diagram works.
 Why are property rights/entrepreneurs so important?
Chapter 3: Where Prices Come From: The Interaction of Supply and Demand
Key Terms
Ceteris Paribus
Competitive market equilibrium
Complements
Demand curve
Demand schedule
Demographics
Income effect
Inferior good
Law of demand
Law of supply
Market demand
Market equilibrium
Normal good
Perfectly Competitive Market
Quantity demanded
Quantity supplied
Shortage
Substitutes
Substitution effect
Supply curve
Supply schedule
Surplus
Technological change
Concepts
 Explain what causes a shift of the demand curve and what causes a movement along the
demand curve.
 Explain what causes a shift of the supply curve and what causes a movement along the
supply curve.
 Explain the law of demand/supply.
 Be able to graph the supply/demand curves and show equilibrium.
 Be able to show how the equilibrium changes when curves are shifted.
 Calculate the surplus/shortage if the market isn’t in equilibrium.
Chapter 4: Economic Efficiency, Government Price Setting, and Taxes
Key Terms
Black market
Consumer surplus
Deadweight loss
Economic Efficiency
Economic surplus
Marginal benefit
Marginal cost
Price ceiling
Price Floor
Producer Surplus
Concepts
 Be able to calculate consumer surplus/producer surplus if you are given a graph.
 MB=MC
 Calculate deadweight loss.
 Be able to graph and calculate the effects of price ceilings and price floors. Explain what
the differences between the two are.