Ch.1 The Nature & Method of Economics
Economic perspective
Utility
Marginal analysis
Theoretical economics
Generalizations
Other things equal
Trade-offs
Micro vs. macro economics
Ch. 2 The Economizing Problem
Economizing problem
Unlimited wants vs. scarce resources
Factors of production (resource categories)
Productive and allocative efficiency
Production possibilities table\curve\concept (and assumptions that go with it)
Law of increasing opportunity cost
What do different points on the curve\inside the curve\outside the curve – tell us?
What causes changes in the PPC?
Trade-offs and opportunity costs
Market System
Circular Flow Model (resource and product market)
Ch. 3 Supply & Demand
What is a market?
Demand (law of, the curve, what causes changes in [determinants], what causes changes in quantity
of)
Supply (law of, the curve, what causes changes in [determinants], what causes changes in quantity
of)
Determinants of both supply and demand
Market Equilibrium
Rationing function of prices
How changes in supply and\or demand affect equilibrium
Government set prices (ceilings and floors) and the resulting problems (shortages and surpluses)
Ch.4 The Market System
Characteristics of the market system
Private property and its role in the market
Self interest
Competition
Specialization
Division of labor
Normal profit
Economic costs vs. accounting costs
Derived demand
Invisible hand
Guiding function of prices
Least cost production
Virtues of the market system (efficiency, incentives, freedom)
Ch. 20 Elasticity of Supply & Demand
Price Elasticity of demand (including determinants)
What do the various states of elasticity (of supply and demand) look like graphically? Perfectly
elastic demand is horizontal for example. Perfectly inelastic demand is vertical line.
Elasticity and the Total revenue test
Elasticity of supply
Cross elasticity of demand
Income elasticity of demand
Normal goods \ inferior goods \ complementary goods \ substitute goods
Market period
Short run
Long run
Ch. 21 Consumer Behavior & Utility Maximization
Income and substitution effects
Law of diminishing marginal utility
Utility \ Total utility \ marginal utility
Consumer choice and budget constraint
Utility maximizing rule, marginal utility per dollar
Rational behavior
Ch. 22 Costs of Production
Economic costs
Opportunity cost
Explicit, implicit costs
Economic profit
Short run, long run
Law of diminishing returns
Total product
Marginal product
Avg product
How do all these curves interact and relate to one another? (think mc and avc\atc)
Fixed costs, variable costs, total costs, and their per-unit or average (AFC, AVC, ATC)
Marginal costs
Long run production costs vs. short run production costs
Economies of scale
Diseconomies of scale
Constant returns to scale
Ch. 23 Pure Competition
Four market models
Characteristics (refer to J. Welker if need be see link below)
Perfectly elastic demand
Avg, total and marginal revenue
Profit maximization in the short run
MR=MC Rule and its characteristics
Calculating profit
Loss-minimizing
Graphical portrayal of all of the above (profit, loss, TR, MR)
To shut down or not to shut down…..that is the question. How do we determine when to shut down
or when to continue operating? Should be able to explain in writing and graphically.
MC and short run supply
Link between diminishing returns, production costs, and product supply
Equilibrium price and quantity
Firm vs industry – we’ve seen how these two work together to determine price and quantity of
output.
Profit maximization in the long run (LR)
Entry eliminates profits
Exit eliminates losses
Efficiency!! (allocative and productive) – know how these two are illustrated graphically and be able
to explain them.
Find output and price, profits\loss graphically
Refer to graphs on review sheet
Ch.24 Monopoly – Krugman Module 61
Characteristics of
 Single seller
 No close subs
 Price maker
 Blocked entry (high barriers)
 Non price competition
Economies of scale
Downward sloping demand curve
MR is less than price!
Price maker
MR=MC rule….still
Find output and price, profits\loss graphically
Refer to graphs on review sheet
Deadweight loss, how monopoly affects consumer and producer surplus
Regulation including graphically what happens
Price discrimination (you don’t need to know the three graphs on p.628 Krugman)
Oligopoly & Monopolistic Comp – Section 12 Krugman
Characteristics of each – refer to J. Welker:
http://welkerswikinomics.wetpaint.com/page/Characteristics+of+Monopolistic+Competition
Collusion
Cartels
Game theory, prisoner’s dilemma – should know how to determine dominant strategy (I won’t ask
about Nash EQ)
Strategic behavior
Interdependence
Tacit collusion
Price wars
Product differentiation
Price leadership
Non-price competition
Monopolistic Competition
Characteristics
Know the graphs (including how to find profit, loss, zero profit)
Long run and short run…..what are the possibilities for profits, losses, and normal profits?
Efficiency in monop comp – is there any? Why or why not?
Product differentiation – how is it done? What are the forms (Module 68)
Factor Markets - Section 13 Krugman’s
** (use the cheat sheets handed out to you as well – I think they are very clear and concise)
Factors of production
Derived demand
Allocation of resources
MRP=MRC
Wage determination (competitive and monopsonistic)
MRP as the demand curve (how is it calculated?)
Cheat sheet pages
 Page 59 Determinants of resource demand – entire page
 Page 61 Optimum combination of resources – entire page
 Page 62 – “Purely Competitive Labor Market” section only
 Page 63 – entire page
 Page 64 & 65: Union Models – only these two - exclusive\craft union (occupational licensing
example) & inclusive\industrial union (wage rates above the competitive [EQ] rate)
Finding wage via the labor market (supply and demand)
Marginal Factor Cost (MFC) = supply (curve shape varies depending on perfect or imperfectly
competitive market
Module 72 Cost minimizing input combination
Cost minimization rule
Externalities and Public Goods – refer to our website