SE201 Principles of Microeconomics
Review Sheet for Exam 1
PART I: FREE MARKET EXCHANGE AND THE GAINS FROM TRADE (CHAPTERS 1-3)
Key terms and topics:
 Economics (as a discipline)
 Microeconomics
 Macroeconomics
 Positive vs Normative statements
 Production Possibilities Frontier
 Absolute and Comparative Advantage
 Gains from trade
Readings:
 Chapters 1 – 3 of textbook
 Adam Smith, Wealth of Nations excerpts
PART II: COMPETITIVE MARKETS AND THE MODEL OF SUPPLY AND DEMAND
(CHAPTERS 4 – 5)
Key terms and topics:
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Characteristics of Perfectly Competitive Markets
Supply (and Inverse Supply) Curves
Demand (and Inverse Demand) Curves
Change in quantity demanded vs change in demand
Determinants of demand
Change in quantity supplied vs change in supply
Determinants of supply
Horizontal summation of individual demand or supply curves to get market demand or supply
Equilibrium price and quantity in competitive markets
Shortage or surplus in a competitive market
Equilibrium changes from shifts in supply and/or demand
Price elasticity of demand and supply
Income elasticity of demand (normal goods and inferior goods)
Cross-price elasticity of demand (substitutes and complements)
Determinants of price elasticity of demand and supply
Elasticity of demand and total revenue/expenditures
Readings:
 Chapters 4 – 5 of textbook
 Smith and Williams, “Experimental Market Economics” article
For numerical problems, you should be able to:
1. Graph a PPF
2. Calculate opportunity cost and determine comparative advantage using either a table of production
possibilities, a PPF graph, or an algebraic expression for a PPF
3. Graph supply and demand curves
4. Find equilibrium price and quantity using supply and demand tables or supply and demand curves
5. Calculate market shortage or surplus if price is not at equilibrium
6. Horizontally sum individual demand or supply curves to get market demand or supply
7. Calculate price elasticity of demand or supply in three ways: using percentages, using midpoint
formula, using point-slope formula