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1 Micro Semester Review Name: The following review is set up to emphasize certain concepts, graphs and terms. It is the responsibility of the individual teachers to emphasize and review the analysis aspects of microeconomics. For example, it is expected that students will be able to use a game theory matrix, even though there are no specific examples of that in the review. Analysis is on the exam!! 1. Define and explain the importance of scarcity. 2. Define and explain the importance of opportunity cost. 3. What are the 3 basic questions asked by all economic systems? _ 4. Define marginal in economic terms. 5. Explain the concept of marginal analysis. 6. What s the fundamental issue of economics? _ 7. Define efficiency. _ 8. What is comparative advantage? _ 9. Acres Needed for one bushel of rice or wheat Rice Wheat Nation A 3 2 Nation B 2 1 Which nation has the comparative advantage in wheat production? Explain why.

2 10. Draw an increasing PPC. Explain how this graph shows opportunity cost. How is efficiency shown on this graph? 11. What does a constant PPC look like? 12. Changes in what 2 things will have the greatest impact (shift) on a PPC? 13. What is the formula for total revenue (TR)? 14. List the basic formula for price elasticity of demand. 15. Explain the meaning of the elasticity coefficients. _ 16. For an elastic product, when price decreases TR will. 17. For an inelastic product, when price increases TR will. 18. What is the arc elasticity formula? 19. What is the cross-price elasticity formula? Regarding this formula, what is the significance of a positive and negative coefficient? _ 20. Define utility. 21. Define the law of diminishing marginal utility. 22. What is the relationship between marginal utility (MU) and total utility (TU) when TU is at its greatest amount? 23. Explain the purpose of the utility maximization formula.

3 24. Define the law of supply. 25. Define the law of demand. 26. Define equilibrium. 27. Draw a basic supply and demand graph, with price and quantity equilibriums labeled. 28. Define consumer surplus (locate on the graph in #27). _ 29. Define producer surplus (locate on the graph in #27). _ 30 What are the four factors of production? 31. What are two other terms for factors of production? 32. Define the following: a. substitute- b. complement- c. normal good- d. inferior good- 33. What are some of the determinants of demand? 34. What are some of the determinants of supply? 35. How does a change in price (on the y-axis) impact the supply and demand graph?

4 36. Draw one supply and demand graph with an effective price floor and another graph with an effective price ceiling. Which produces a shortage? A shortage? Price floor graph Price ceiling graph 37. What is the income effect? 38. What is the substitution effect? 39. What is another economic term for industry? 40. What is an excise tax? 41. Write the formulas for the following: a. Total Cost (TC)-- b. Average Variable Cost (AVC)-- c. Average Fixed Cost (AFC)-- d. Average Total Cost (ATC)-- e. Allocative Efficiency-- f. Marginal Revenue (MR)-- g. Marginal Cost (MC)-- h. Profit Maximization in the product market In microeconomics, what is the difference between short and long run? 43. What are economies of scale? 44. What are diseconomies of scale?

5 45. If price > marginal cost, what should happen to output if increased efficiency is the goal? 46. A lump-sum tax shifts only the cost curve upward, leaving quantity at profit maximization unchanged. A per-unit tax has a negative impact on the cost curve, the cost curve and the cost curve, which reduces quantity at profit maximization. 47. How are ATC and MC related? 48. What is the difference between normal and economic profits? _ 49. List 3 characteristics of a perfectly competitive firm. 50. Draw a perfectly competitive firm earning a profit side-by-side with the corresponding industry graph. a. What will be the impact on the industry graph if most firms started earning an economic profit? b. What is the only way the firm can change its price?

6 51. How would an economic loss be shown on a firm graph? _ 52. When should a firm shut down? 53. Draw a perfectly competitive firm in long run. 54. What would happen to TR (for a perfectly competitive firm) if the firm increased the price of the product above the market price? 55. Draw a monopoly graph earning a profit. Label profit maximization as Ppm and Qpm. Label a perfectly competitive industry s price and quantity as Pc and Qe. 56. Why are monopolies inefficient?

7 57. How does a monopoly s MR curve differ from a perfectly competitive firm s MR curve? 58. Define price discrimination. a. List various ways sellers attempt to price discriminate. 59. How does a price discriminating firm establish the maximum quantity it would want to sell? 60. Draw a monopoly graph. Show how the demand curve is divided into the elastic and inelastic segments. 61. What characteristic distinguishes a natural monopoly from other types of monopolies? 62. Define deadweight loss (DWL). a. Locate DWL on the graph in #60. b. Why does DWL exist for a non-price discriminating monopoly? 63. Define collusion. a. In which market structure would you most likely find collusion? b. What would be the advantage of collusion in game theory?

8 64. Define dominant strategy. 65. When does Nash equilibrium occur on a game theory matrix? 66. How does interdependence impact decisions made by members of the market structure? 67. What are the key characteristics of a monopolistically competitive firm? _ 68. Draw a monopolistically competitive firm in long run. a. How are price and quantity different for a monopolistically competitive firm in long run than a perfectly competitive firm in long run? b. How are perfectly competitive and monopolistically competitive firms similar in the long run? 69. Define the law of diminishing (marginal) returns. 70. Write the formulas for the following: a. marginal product (MP)-- b. marginal revenue product (MRP)-- c. marginal factor (resource) cost (MFC)-- d. profit maximization in the factor market--

9 71. Draw the graph for a firm hiring workers in perfectly competitive labor market side-by-side with the corresponding industry graph. 72. If using 2 inputs, capital and labor, what formula depicts the least cost combination of capital and labor in producing output? 73. Define derived demand. 74. Draw a firm graph depicting a monopsony in the labor market. a. How is the quantity of workers and the wage rate different in a monopsony than the quantity and wage rate found in a perfectly competitive firm?

10 75. Draw and explain the purpose of the Lorenz curve graph. Purpose: 76. Define subsidy. a. For what main purpose does the gov t. use a subsidy? 77. What s the formula for determining the socially optimal distribution of resources? 78. What is the difference between a public and private good? 79. What are the characteristics of a pure public good? 80. Draw a supply and demand graph showing a positive externality with separate demand and marginal social benefit (MSB) curves. a. What is the problem with the private level of output?

11 81. Draw a supply and demand graph showing a negative externality with separate supply and marginal social cost (MSC) curves. a. What is the problem with the private level of output? 82. Define free rider.

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