STUDY GUIDE FOR OUR FIRST EXAM IN PRINCIPLES OF MACROECONOMICS

Our midterm exams are each worth 20 percent of your semester grade. Bring two #2 pencils, a good eraser, a picture ID, and a basic calculator (no calculators that can store text allowed). You will not be allowed to use your cell phones. There are 40 multiple-choice questions, 24 from chapter four, five from chapter 2 (especially comparative and absolute advantage), four from chapter three,  and seven from chapter five.

You’re responsible for all of the material in the reading, homework and lecture. I suggest you reread each chapter. You should also review the graded homework assignments to make sure you have learned from any mistakes you may have made.  

Here is a list of concepts you should understand:

The Economic Problem is the consequence of scarce resources and unlimited wants.

Scarcity

Self-Interest

Division of Labor

Economic Efficiency

Physical capital & other resources

Positive and normative economics

Basic knowledge of graphs

Three questions every economic system must answer

Economic systems

Law of Demand

Demand Curve Determinants (PoINTE)

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

Market equilibrium

Consumer surplus -- the difference between the maximum amount consumers would be willing to pay for a particular quantity of a good (usually the equilibrium quantity) and the amount they actually pay.  Thus, consumer surplus is the area underneath the demand curve and above the equilibrium price.

Producer surplus  -- the difference between the minimum amount producers would be willing to accept for a particular quantity of a good (usually the equilibrium quantity) and the amount they actually receive.  Thus, producer surplus is the area above the supply curve and below the equilibrium price. Producer surplus equals total revenues minus variable costs.

Aggregate gain -- the sum of producer and consumer surpluses.

Shifts in Supply and Demand -- see PoINTE and TRANE above

Marginal Benefit is the extra or added benefit from (consuming) one more unit of a good or service. It is measured by the demand price, the maximum willingness to pay for that unit.

Marginal Cost is the extra or added cost of (producing) one more unit of a good or service. It is measured by the supply price, the minimum cost of producing that unit.

Price ceilings, price floors, import quotas.

The Case Studies from the text (Chapters 1-4)

Summing individual demands to get market demand

Role of time in demand

Opportunity costs in production

Production possibilities frontier (PPF)

    and the sources of economic growth

    and trade, comparative advantage, absolute advantage

Gains from trade

Aplia experiments and related homework. New analysis assignments too.