MIDTERM REVIEW GUIDE
Instructor: Salam Abdus
These
notes are meant to direct your studying, but make sure you review all class
notes. Anything covered in lecture is fair
game for the exam. So what information
will be tested? We have covered material
from chapters 1 to 11. Any techniques or
knowledge discussed in these chapters will potentially be on the test. The most important of these
topics are listed below.
There will
be two types of questions on the exam: written and multiple choice.
Written Questions
Expect
written questions to be similar to those in assignments ;
that is, answers will require graphing, math, and/or short written
explanation. You will be allowed to use
a calculator, ruler, and colored pens/pencils if you so desire (and if you
bring them; no sharing).
Multiple Choice Questions
I
haven’t asked any questions like these on assignments ;
however, I will give you an easy rule to determine what will be tested in this
way. I see multiple choice
as a way of testing your understanding of the ideas we have been discussing,
while written questions test the techniques.
Thus, as you review your notes, you will see sections where I did very
little math and a lot of verbal explanation.
Those are prime candidates for multiple choice. There will be 5-10 of these, and with
adequate studying, you should be able to answer each one fairly quickly.
To
prepare for these questions, look over each of the key concepts I have
introduced. Ask yourself what the
concept means, where we see it in use, why it matters to economists, and how it
relates to other ideas in the course.
The
best approach to studying would be to review the notes/reading, making sure you
understand the concepts, then work through assignment
problems. Don’t hesitate to consult me
or Christos while you study.
I
will not ask for word-for-word definitions, but it is very valuable to
understand them, since it will help you grasp the concepts and apply them in
new ways if an exam question requires it.
Chapter 1&2
1. The necessity for abstraction in
Economics.
2.Why do economists disagree: Positive and Normative Economics.
3.Why do we need theory to understand data.
Chapter3:Interdependence
and gains from Trade
1.What is
opportunity cost.
2.Compartive advantage,Absolute advantage.
3.How to draw
Production Possibility Frontiers.
4.How can two
parties gain from trade, after specializing in goods of Comparative Advantage.
Chapter 4:Supply
and Demand
1.What are the
assumptions of a perfectly competitive market?
2.How to draw
demand curves from demand schedules.
3.Deriving market
demand curves from individual demand curves.
4.Factors that
shift the market demand curve.
5.Supply curves.
6.Deriving
market supply curves from individual supply curves.
7.Factors that
shift the market supply curve.
8.How to find
the market equilibrium, that is , equilibrium quantity and equilibrium price.
9.How the market
reaches the equilibrium(Equilibrium adjustment Process).
10.How do shifts
in demand and/or supply curve affect market equilibrium.
Chapter 5:Elasticities
of Demand
1.What is Price
Elasticity of Demand?
2.What are the
determinants of Price Elasticity of Demand?
3.How to compute
Price Elasticity of Demand.
4.Realationship
between Total Revenue and Price Elasticity of Demand.
5.What is Income
Elasticity of Deamand?
6.What is
Cross-Price Elasticity of Demand?
7.What is Price
Elasticity of Supply?
8.Applications
of Ealsticity,
supply and demand(pages 104-109).
Chapter 6:Taxes,
Subsidies and Price Control
1.How do price
ceilings affect market equilibrium?
2. How do price floors affect market
equilibrium?
3. How do taxes affect market equilibrium?
4. How do subsidies affect market
equilibrium?
5.Relationship of
elasticity of demand and supply curve with consumer burden and producer burden
of tax.
Chapter 7:Consumer
Srplus, Producer Surplus and Market efficiency-
1.What is Consumer
Surplus? How can we find Consumer Surplus, given demand curve
, equilibrium price and quantity?
2. What is Producer Surplus? How can we find
Producer Surplus, given supply curve , equilibrium
price and quantity?
3.What is Total
surplus? What is the efficient quantity of production of a competitive market,
that is, what quantity maximizes Total Surplus?
Chapter 8:Applications
:Taxes,Subsidies ,Price Control
1.Show
the effect of price ceiling on Total Surplus in a competitive market. Show the
Consumer Surplus, Producer Surplus and Dead-weight Loss due to price ceiling.
2. Show the effect of price floor on
Total Surplus in a competitive market. Show the Consumer Surplus, Producer
Surplus and Dead-weight Loss due to price floor.
3. Show the effect of Taxes
on Total Surplus in a competitive market. Show the Consumer Surplus, Producer Surplus ,Government Revenue and Dead-weight Loss due to
taxes.
4.How
is the size of DWL related to elasticities of demand
and supply curves?
5.How
is the size of DWL related to tax size ?
6.How
is the size of Tax revenue related to tax size? What is a Laffer
Curve?
7. Show the effect of
Subsidies on Total Surplus in a competitive market. Show the Consumer Surplus,
Producer Surplus and
Government expenditure due
to Subsidies? What is the l Surplus? What is the Dead-weight Loss?
Chapter 9:Gains
from trade
1.What
does the assumption of small country imply?
2.How
is the equilibrium in the domestic market affected once free trade with the
world is allowed without restriction, if
a.World
price is above domestic equilibrium price?
b.World
price is below domestic equilibrium price?
3.Show theTotal Surplus of an
exporting country. Show both Consumer and Producer Surplus.
4. Show theTotal
Surplus of an
importing country. Show both Consumer and Producer Surplus.
5.How
does Tariff effect market equilibrium of an importing country?How
does domestic production, domestic consumption changes?
6.Show
the welfare effects of Tariff. Show the CS, PS and Government Revenue due to
Tariff. Show the DWL.
7. How does Tariff effect market
equilibrium of an importing country? How does domestic production, domestic
consumption changes?
8.Show
the welfare effects of Import Quota. Show the CS, PS and License-Holder’s Revenue due
to Import Quota. Show the DWL
Chapter 10:Externality
1.What is Externality? Give examples of
Negative and Positive Externalities.
2.What
is the difference between private cost
and social cost of production. What is the difference between private value and
social value.
3.What is the
efficient quantity of Production in presence of externality?That
is, what quantity maximizes Total Surplus?
4.Show the DWL
from market equilibrium in presence of a) positive, b) negative externalities
in production. Do the same for positive and negative externalities of
consumption.
5.What is Coase’s Theorem?
6.
How the government can
achieve socially efficient production level, using pigovian taxes or subsidies?
7. What are the advantages and
disadvantages of following the following methods of reducing pollution?
a. Direct Control
b. Pollution Tax
c.Auctioning
Pollution Permits.
Chapter 11:Public goods
1. What are the characteristics of public
goods? What is rivalness and excludability?
2. Why profit maximizing firms may fail to
supply public goods in market? Explain free-rider problem.