ECONOMICS 2306 - Baylor University



ECONOMICS 2306

REVIEW SHEET FOR EXAM I

The following is a thorough but not exhaustive list of the concepts you need to have mastered for the exam. You should know definitions of terms; formulas and how to use them; graphs, what they represent, and how to draw and read them; tables of data and how to work with them.

CHAPTER 1

Economics, scarcity, and choice

Resources and payments to resource owners

Economic decision makers and their roles in the economy; the circular flow model

Product and resource markets

The meaning of each of the following terms: marginal analysis; microeconomics; macroeconomics; economic model; positive and normative economic statements

Graphs: positive and negative relations between variables; slopes and how to calculate them; shifting of lines

CHAPTER 2

Absolute and comparative advantage: definitions; calculating opportunity costs to determine comparative advantage; the law of comparative advantage; the importance of specialization and exchange

Production possibilities frontier: definition; points on, inside, and outside the PPF; reason for shape of PPF

Movement along the PPF; opportunity cost; law of increasing opportunity cost

Causes of shifts of the PPF

Economic systems and their characteristics

CHAPTER 3

Demand and quantity demanded: law of demand; explanations of the law of demand; constructing a demand curve; movements along the demand curve; factors that shift the demand curve; when to use the term “demand” and when to use “quantity demanded”; normal and inferior goods; substitutes and complements

Supply and quantity supplied: law of supply; constructing a supply curve; movements along the supply curve; factors that shift the supply curve; when to use the term “supply” and when to use “quantity supplied”; relevant resources; alternative goods

Market equilibrium, equilibrium price, equilibrium quantity; surplus, how to measure a surplus on a graph, market adjustments to correct a surplus; shortage, how to measure a shortage on a graph, market adjustments to correct a shortage

Changes in equilibrium price and quantity when the demand curve shifts; changes in equilibrium price and quantity when the supply curve shifts; changes in equilibrium price and quantity when both curves shift simultaneously

Price floors and ceilings: definitions, how to depict them on a graph, results and how we deal with them

CHAPTER 5

Price elasticity of demand: definition; short and long formulas and calculations; definitions of elastic, unit elastic, inelastic, perfectly elastic, and perfectly inelastic demand and shapes of the demand curves; relationship between elasticity and total revenue; how to interpret ED values; determinants of price elasticity of demand

Price elasticity of supply: definition; short and long formulas and calculations; definitions of elastic, unit elastic, inelastic, perfectly elastic, and perfectly inelastic supply, and shapes of the supply curves; how to interpret ES values; determinants of price elasticity of supply

Income elasticity of demand: definition; short and long formulas and calculations; signs (+ or -) and their significance; how to interpret IED values

Cross-price elasticity of demand: definition; short and long formulas and calculations; signs (+ or -) and their significance; how to interpret CPED values

CHAPTER 6

Utility: definition; total utility; marginal utility; law of diminishing marginal utility

Utility maximization when there is no scarcity

Utility maximization when there is scarcity: marginal utility per dollar spent; consumer equilibrium and how to find it; deriving the law of demand from marginal utility

Consumer surplus: definition; calculation

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