ECON 3710, Intermediate Microeconomics
Review Sheet #1
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Spring, 2010
Dr. Porter
Be able to define the following terms: economics, scarcity, opportunity costs.
What is meant by the term marginalism?
What is the difference between positive and normative questions?
What factors define a market?
What is meant by the term “demand”? What is the law of demand?
What is meant by the term “supply”? What is the law of supply?
Be able to define the terms shortage (or excess demand), surplus (or excess
supply), and equilibrium.
8. If the price is not at the equilibrium price, explain what forces would move the
price towards the equilibrium.
9. What is a price floor and what is a price ceiling? How would they alter the
outcomes of a market?
10. Be able to list the determinants of demand and show how a change in one of the
determinants of demand would alter the demand curve.
11. Be able to define the following terms: income effect, substitution effect, inferior
good, normal good, complement, and substitute.
12. Be able to explain the difference between a change in demand and a change in the
quantity demanded.
13. Be able to list the determinants of supply and show how a change in one of the
determinants of supply would alter the supply curve.
14. Be able to explain the difference between a change in supply and a change in the
quantity supplied.
15. What does the price elasticity of demand measure? Be able to calculate a point
elasticity using calculus given the demand function and a price.
16. When would we say demand is inelastic? What does a perfectly inelastic demand
curve look like?
17. When would we say demand is elastic? What would a perfectly elastic demand
curve look like?
18. What does income elasticity measure? How would income elasticity indicate if a
good was a normal good or inferior good?
19. What does the cross-price elasticity measure? How would it indicate if a good is a
complement or a substitute?
20. What is a budget constraint? Be able to show how the budget line changes with
changes in income and price.
21. What is a composite good?
22. What is a preference ordering? Be able to explain the characteristics we expect
consumers’ preference orderings to have:
Completeness
More-is-better
Transitivity
Convexity
23. What is an indifference curve? Be able to explain the different characteristics of
indifference curves:
Downward sloping
Do not cross or touch
Further from the origin are associated with higher utility
Convex to the origin
24. What is the best affordable bundle? Be able to show the best affordable bundle
graphically and discuss the rule MRS = Px/Py.
25. What is a corner solution? What condition has to be met for a corner solution on
the X axis?
26. Using budget lines and indifference curves show how to derive an individual
consumer’s demand curve.
27. What is an Engel curve?
28. What is the difference between a normal good and an inferior good?
29. Using indifference curves and budget lines be able to decompose the change in
the consumption of X due to a change in the price of X into income and
substitution effects.
30. What is a Giffen good?
31. When is the substitution effect stronger, when the goods are close to being perfect
substitutes or perfect complements?
32. What determines the strength of the income effect? The substitution effect?
33. Why does using a Laspeyres price index overstate inflation?
34. How is the elasticity of demand related to total expenditure on a good? In other
words, how will the total expenditures on a good change if demand is elastic and
the price rises (or falls)? If the good is inelastic?
35. What is a network externality? The bandwagon effect? The snob effect? How
could the bandwagon effect result in a market being monopolized?
36. Be able to define the term consumer surplus and to show the area representing
consumer surplus on a graph.
37. Be able to define the following terms from behavioral economics and give
examples:
a. Reference point
b. Anchoring
c. Endowment effect
d. Default effect
e. Narrow framing
f. Rules of thumb