Eastwood's ECO284 Course Page

Principles of Microeconomics, ECO 284 Study Guide for Final Exam

There are two parts to our 100-question, multiple-choice final exam. About fifty questions concern the chapters covered on the first three exams: 1, 2, 4 through 10 and 21. The remaining  questions concern the new material, chapters 10 (game theory), 11, 13, 14, 15, 16 (part), 17 (part), 18, 19 and 20 (part). I have prepared practice quizzes for each of these chapters. Study the material, then use the practice quiz to check your preparation. The link to each quiz is underlined below:

Chapter Ten, Monopolistic Competition and Oligopoly:  Monopolistic Competition (SR and LR equilibria, compared to Pure Competition), Oligopoly, Game Theory (Collusion, cheating, tit-for tat, dominant strategy, Cartels, Price leadership (lecture), Limit pricing, Collusion, Advertising. Practice Quiz

Chapter Eleven:  Resource markets; Marginal Revenue Product (MRP), Marginal Resource Cost (MRC) and profit maximization; the Demand for Labor (MRP) [and the closely-related concept of Value Marginal Product (VMP)] when MRP shifts and its elasticity: determinants of the elasticity of demand for labor include time, the labor intensity of the production process (+), the elasticity of demand for the product (+), and the substitutability of capital for labor(+); the Supply of Labor (know its determinants, find economic rent and opportunity cost; Monopsony (literally, a single buyer but often used to refer to a firm large enough to influence the prices of the resources it hires.) Practice Quiz

Chapter Twelve:   We skipped this chapter. It will not be tested on our final exam. Labor supply and utility maximization; substitution and income effects; non-wage determinants of labor supply; individual and market supply of labor; why wage rates differ, e.g., "wage differentials;" unions and collective bargaining; Minimum wage law; immigration. Practice Quiz

Chapter Thirteen:  The role of time in production and consumption: positive rate of time preference; market interest rate -- the opportunity cost of investing either borrowed funds or savings; optimal investment; marginal rate of return on investment (MRP/MRC); the market for loanable funds (demand & supply and what shifts each); why interest rates differ; present value (PV) of a payment t years in the future; PV of an income stream; PV of an annuity; PV of a perpetuity (ALSO understand why we must use discounting and present value to compare values across time.); corporate finance Practice Quiz

Chapter Fourteen -- Economies of Scope (average cost falls as the firm expands its product line); the market for lemons (Aplia experiment); Ronald Coase on "The Nature of the Firm"; outsourcing; market behavior with imperfect information; asymmetric information; adverse selection; moral hazard; the principal-agent problem; signaling and screening; The Winner's Curse; optimal search; and Practice Quiz

Chapter Fifteen, Economic Regulation and Antitrust Policy: market power; social regulation; economic regulation (especially of public utilities); capture theory of regulation; competitive trends in the US economy (Shepherd's results and why competition has increased)
Antitrust: Types of mergers (horizontal, vertical, conglomerate), economies of scope; History -- Sherman Antitrust Act of 1890, Clayton Act of 1914 (what's illegal), Federal Trade Commission (FTC) Act of 1914;  Two important rulings by the US Supreme Court ("rule of reason" vs. "per se" illegal)
Current policy: Herfindahl-Hirschman Index (HHI); regulation of mergers; the myth of predatory pricing --  Practice Quiz

Chapter Sixteen: Public goods; Natural monopolies; Tragedy of the Commons (a.k.a. quasi-public goods -- see homework from our last Aplia experiment); Rent-seeking behavior. We skipped the rest of the content of this chapter. It will not be tested on our final exam. Topics not covered: open-access goods (a.k.a. common resources); private goods; Non-rivalry and non-excludability; the free-rider problem;  categories of legislation based on the distribution of its benefits and costs ( traditional public goods, special interest, populist and competing interest)  -- Practice Quiz

Chapter Seventeen: Marginal Social Benefit; Marginal Social Cost; externalities; external costs and over-production; external benefits and under-production; use of taxes or subsidies to correct negative or positive externalities; optimal level of pollution; pollution abatement under fixed and variable technologies; economic efficiency approach versus command and control; cap and trade compared to a tax on emissions; Coase Theorem -- Practice Quiz

Chapter Eighteen, Income Distribution and Poverty -- Know the definitions of the vocabulary from the chapter; official definition of the poverty threshold in the US; Census Bureau's Supplemental Poverty Measure; social insurance v. income assistance programs; cash vs. in-kind transfers  Practice Quiz.

Chapter Nineteen -- Opportunity costs in production; Production Possibilities Frontier (PPF) model and trade, comparative advantage, absolute advantage; Terms of trade (price of exports/price of imports) and their representation as a terms-of-trade line or Consumption Possibilities Frontier, CPF; Gains from trade; Trade in services, US trading partners, US exports & imports,  Arguments against free trade (to what extent is each valid); Tariffs, and quotas and their welfare effects; embargo; prohibitive tariff; pure-revenue tariff; tariff rate quota; Voluntary Export Restraint, VER; export subsidies reduce welfare of the exporting country

Practice Quiz.  See also the relevant material from "Exam One in Study Guide format" below

Chapter Twenty -- Balance of payments accounting identity: current account + financial account = 0.
Current account = net exports + net unilateral transfers + net factor income from abroad (mostly investment income, but some people work abroad); statistical discrepancy. In the long run, our exports pay for our imports.
Foreign exchange markets: appreciation vs. depreciation of a floating exchange rate; revaluation vs. devaluation of a fixed exchange rate. Demand for and supply of foreign exchange and their determinants. Practice questions included with Chapter Nineteen above.

Suggestions on how to study for the final

I recommend that you study from your text (review all of the graphs), your old exams, your homework, and the practice quizzes. However do not attempt to memorize old questions, as none of the old questions are repeated verbatim. Instead, focus on understanding the underlying concepts. Here is a list of concepts you should understand:
The Economic Problem
Scarcity
Division of Labor
Economic Efficiency  
Productive (Technological) Efficiency
Allocative Efficiency (MSB=MSC)
Physical capital & other resources
Basic knowledge of graphs
Opportunity cost
Law of Demand
Demand Curve Determinants (PoINTES)
Change in quantity demanded
Change in demand
Normal and Inferior Goods
Substitutes and Complements
Law of Supply
Supply Curve Determinants (TRANE)
Change in quantity supplied
Change in supply
Shifts in Supply and Demand (you may wish to draw some graphs)
Price Elasticity of Supply and Demand
Inelastic/Elastic/Unit elastic
Cross-price elasticity
Income elasticity
Consumers’ and Producers’ Surpluses
Incidence of a tax
Specific and ad-valorem taxes
Graphing Supply and Demand, and the incidence of a tax
Price Ceilings and Floors (graph)
How to derive the demand curve using total and marginal utility concepts
Definitions of Substitution and Income Effects
Marshall’s concept of analytic time (esp. short- and long-run)
Determinants of the production function
Calculate and graph (or read from a graph) TP (Q), MP, FC, VC, TC, AFC, AVC, ATC, MC, MR ( in each market structure), TR, PROFIT, LRAC
Economies of scale, constant returns to scale, diseconomies of scale, and Minimum Efficient Scale
Technology: Product, Process, progress in
How to combine resources
Characteristics of the four market structures
Profit maximizing level of output
Pure competition graphs (in detail, short- and long-run equilibrium)
When to produce and when to shut down
Normal profit, economic profit, accounting profit, explicit costs, implicit costs
Increasing-, Constant-, and Decreasing- Cost Industries
Barriers to entry
Price discrimination
Monopoly graphs, in detail
Natural monopoly
Monopolistic Competition (SR and LR equilibria & graphs, in detail)
Product differentiation
Advertising
Excess capacity theorem
Oligopoly
Game Theory: find dominant strategy & Nash equilibrium
Concentration Ratios (CR4) -- add the market shares (%) of the four biggest firms
Herfindahl-Hirschman Index, HHI
Duopoly
Cartels
Contestable Markets
Price leadership
Limit pricing
Collusion
Demand for Labor, shifts & elasticity
Supply of labor: determinants, estimated elasticity, skilled & unskilled labor
MRC, MRP, VMP, Profit Maximization
Monopsony (means a single buyer of a resource; its marginal resource cost exceeds the resource price)
Public goods
The free-rider problem
Externalities
External costs
External benefits
External economies
External diseconomies
Marginal Social Benefit
Marginal Social Cost
Rent-seeking behavior
Opportunity costs in production
PPF model and trade (in detail with graph), comparative advantage, absolute advantage
Terms of trade, CPF
Gains from trade
Trade in services, US trading partners, US exports & imports, US balance of trade
Arguments against free trade (To what extent is each valid)
Tariffs, quotas, Voluntary Export Restraints (VERs) and their welfare effects
Embargo; prohibitive tariff; pure-revenue tariff; tariff rate quota; VER
Moral hazard (see glossary)
Adverse selection (see glossary)
People you should know:
David Ricardo
Adam Smith
Joan Robinson
John von Neumann
Ronald H. Coase

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