Microeconomics Exam Review Econ 110/111

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9 Dec 2012

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Econ 111 Exam Review
Chapter 1
Chapter 2
Chapter 33 (pgs 842 - 855)
Supply and Demand
Chapter 3
Chapter 4
Chapter 5
Household Behaviour
Chapter 6 (incl. Appendix)
Supplementary Chapter: Other Household Decisions
Producer Theory
Chapter 7
Chapter 8 (omit Appendix)
Market Structures and
Chapter 9
Additional Topic from MyEconLab website: "The Long-
Run Industry Supply Curve"
Chapter 10
Chapter 11
Chapter 12
Trade and Protectionism
Chapter 33 (pgs 855 - 866)
Chapter 34
Factor Markets
Chapter 13
Chapter 1 Economic Issues and Concepts
Economy a system in which scarce resources are allocated among competing uses
-Self interest is the foundation of economic order, a free market is self organizing
Main characteristics of market economies:
1. self interest individuals pursue their own self interest, buying ad selling
what seems best for them
2. Incentives sellers want to sell more when prices are high, buyers want to
buy more when prices are low
3. Market prices and Quantities are determined in the free markets in which
would-be sellers compete to sell their products to would-be buyers
4. Institutions all these activities are governed by a set of institutions largely
created by government. The natures of private property and contractual
obligations are defined by laws passed by legislations
Economics the study of the use of scarce resources to satisfy unlimited human
3 basic questions:
1. What gets produced and how? -MICRO
2. What is consumed and by whom? -MICRO
3. Why are resources sometimes left idle? MACRO
4. Is productive capacity growing and how does this come about? -MACRO
Factors of production resources used to produce goods and services; frequently
divided into the basic categories of land, labour, and capital
Goods are tangible commodities and services are intangible commodities
Scarcity implies that choice must be made, and making choices implies the
existence of costs. Everytime a choice is made, opportunity costs are incurred
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Opportunity cost the cost of using resources for a certain purpose, measured by
the benefit given up by not using them in their best alternative use i.e. if resources
that could have produced 20km of road are best used instead to produce one
hospital, then the opportunity cost of a hospital is 20 km of road
Production Possibilities Boundary a curve showing which alternative
combinations of commodities can be attained if all available resources are used
efficiently; it is the boundary between attainable and unattainable output
-scarcity is indicated by the unattainable combinations outside the boundary
-choice is indicated by the need to choose among the available alternative
points along the boundary
-opportunity cost is demonstrated by the negative slope of the boundary
Points A, B and C are attainable
Point Y is unattainable (unless there is an
increase in technology
Point X is inefficient
-the shape of the PPB implies that an increasing amount of product A must be given
up to achieve equal successive increases in product B. This shape (concave to
origin) indicated that the opp cost of either good increases as we increase the
amount of it that is produced. A straight line boundary would mean that the opp
cost is constant.
-this shape occurs because each factor of production is not equally useful in
producing all goods. i.e. land might be particularly well suited to growing wheat and
as you shift more and more, you might be using land that is more suited to the
production of clothing, so the extra amount of clothing that must be foregone rises
and the opportunity cost of producing one good of wheat rises as more wheat is
-when an economy grows, the PPB shifts outward and can produce more of both
Resource allocation the allocation of an economy’s scarce resources among
alternative uses
Microeconomics the study of the causes and consequences of the allocation of
resources as it is affected by the workings of the price system
Macroeconomics the study of the determination of economic aggregates such as
total output, the price level, employment, and growth
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-consumers and producers who are maximizers make marginal decisions whether
to buy or sell a little bit more or less of the many things that they buy and sell
Product market a market in which products are sold by firms and bought by
Factor market a market in which households sell and firms buy factors of
-the red line shows the flow of goods and services, and the blue line shows the
payments made to purchase these
Specialization of labour the specialization of individual workers in the
production of particular goods or services. The economy’s total production is
greater when people specialize than when they all try to be self-sufficient
Division of labour the breaking up of production process into a series of
specialized tasks, each done by a different worker. (specialization within the
production process of a particular product)
-specialization must be accompanied by trade, People who produce only one thing
must trade most of it to obtain all the other things they want
Barter an economic system in which goods and services are traded directly for
other goods and services. Requires a double coincidence of wants.
-money facilitates specialization and trade
Types of Economic Systems
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