Our second exam will be more difficult than our first exam, reflecting the more difficult material we have studied. It will test your knowledge of the material we have covered. As of Tuesday, March 27, we will have covered textbook chapters 1, 2, 4 through 10 (up to page 239) and 21, including the appendices to Chapters 1 and 5. The exam currently includes 60 questions, including 22 matching questions and 38 multiple-choice questions. While most of the questions focus on the new chapters, there are some questions which require that you understand the concepts presented in the earlier chapters. Memorize the formulae for the concepts we have studied.
Study the vocabulary from the text for the matching questions, and to help you read the multiple-choice questions.
As before, bring a basic calculator (not your
cell phone), two #2 pencils, and a good eraser. I do expect that most of you
will want to use a calculator on this exam.
I recommend that you reread each chapter, review your Aplia assignments,
our practice quizzes and worksheets (especially the Yokemberry Tonic one). If you
wish to get more practice, you may use the quizzes at the publisher's web site
(by following the link posted under Course Materials). For still more practice,
I have posted two new practice exams on Aplia, under course materials. One
covers elasticity and tax incidence, the other concerns consumer equilibrium.
Chapter Five, Elasticity & Tax Incidence: In addition to a thorough understanding of basic supply and demand concepts, you should be able to define, apply or perform the following: economic incidence of a tax; graph supply & demand; add a tax and determine its burdens by comparing the gross and net prices to the original equilibrium price (these concepts were covered just before our first exam, so I have saved them for this exam; total revenue; marginal revenue; elastic; inelastic; price elasticity of demand or supply, cross-price elasticity of demand (complements & substitutes); income elasticity of demand (normal and inferior goods) (know arc formulas and percentage formulas for all elasticity concepts); elasticity of linear demand and supply; consumers’ surplus; producers’ surplus; deadweight loss; economic and legal tax burden; excess burden of a tax, determinants of the price elasticity of demand, determinants of the price elasticity of supply.
Chapter Six, Consumer Choice: In addition to the above, you should be able to define, apply, and calculate the following: total utility, marginal utility, marginal utility per dollar, relative price, consumer equilibrium (find it in a numerical example), law of diminishing marginal utility
Appendix (also tested on this exam): marginal rate of substitution, budget constraint (distinguish between a change in income and a change in relative price), indifference curves (properties of), diminishing marginal rate of substitution, substitution effect, income effect -- for a normal good it's positive, but it's negative for an inferior good.
Chapter Seven, Production & Cost: normal profits as a production cost -- explicit and implicit costs, economic profit, accounting profit. Know the vocabulary, including the meaning of plants, firms, and industries.
Short run (at
least one fixed resource): Total Product of the (typical) firm = q = firm’s
output (& what will cause TP to shift), Average Product, AP=q/L, Marginal
Product, MPL =
Dq/DL, diminishing marginal
returns (diminishing MPL), average-marginal rule, Total Cost, TC =
FC+ VC, where FC=Fixed Cost (costs that do not vary with the firm’s output,
q), Variable Cost, VC = wL (when labor is the only variable input). Average Total
Cost, ATC = TC/q, Average Variable Cost, AVC = VC/q, AVC = w/APL(when
labor is the only variable input). Average Fixed Cost, AFC = FC/q, Marginal
Cost, MC =
DTC/Dq, MC =
DVC/Dq,
MC = w/MPL(when labor is the only variable input).
Long-run (all resources are variable): Long-run Average Cost, LRAC, Increasing
Returns to Scale (Economies of Scale), Constant Returns to Scale, Decreasing
Returns to Scale (Diseconomies of Scale), minimum efficient scale, optimal plant
size, Marginal Product of Capital, MPK =
Dq/DK, least-cost production (equal MP/$).
Appendix (also tested on this exam): cost minimization using isoquants and isocost lines, Marginal Rate of Technical Substitution (slope of the isoquant)
You will need to understand these concepts and be able to identify them on various graphs representing the market structures we have studied (Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly).
Chapter Eight, Perfect Competition: Understand both the short- and long-run equilibria for this market structure; Structure-Conduct-Performance paradigm; market structure (characteristics of perfect competition, monopolistic competition, oligopoly and monopoly); perfectly-competitive firm’s D and MR curves (P=AR=MR); profit maximizing rule (MR=MC), shut-down point (min. AVC); compute profit and costs from tables or graphs; recognize, draw, and use graphs of costs and revenue; understand short-run & long-run equilibria, consumer efficiency, producer efficiency, productive efficiency, allocative efficiency; Long-run Industry Supply (Increasing-cost and Constant-cost Industries).
Chapter Nine, Monopoly: Barriers to entry, natural monopoly, D and MR under monopoly, profit maximizing level of output, graphs, price discrimination (perfect price discrimination, quantity discounts, market segments with differing elasticities), monopoly compared to pure competition {allocative inefficiency, X-inefficiency (occurs when monopolists don't minimize costs), rent seeking}. Practice Quiz
Chapter Ten, Monopolistic Competition and Oligopoly: Monopolistic Competition (SR and LR equilibria, compared to Pure Competition), excess capacity, Oligopoly (differentiated vs. undifferentiated), Collusion, cheating, Cartels, Price leadership. Practice Quiz
Chapter Ten, Monopolistic Competition and Oligopoly: The material on Game Theory, which begins on page 239, will not be included on our second exam, but will be included on the final exam. Important concepts include dominant strategy, Prisoner's Dilemma, and Nash equilibrium.