Study guide for an intro to Microeconomics final

The following is the study guide I generally give to students in preparation for the final quiz.  Elasticities and most market structure questions are left off of the final quiz, because it focuses more on intuition and policy.  It also doesn't go into detail for specific questions, but if you understand all of the concepts then you have a firm grasp of introductory microeconomics.

·         Review the circular flow diagram; understand what each of the boxes represent and why they are there (households, firms, etc.).  Know how/why they interact with each other.

·        Understand the concept of opportunity cost.  In particular determining the relationship between costs associated with your choice, and true opportunity costs.

·        Understand and be able to identify the ideas of comparative and absolute advantage.

·        Know the determinants of supply and demand.  In particular what can shift these curves?  I.e. Income, cost of inputs, expectations, etc.  Know the difference between change in demand/supply and change in quantity demand/supply.

·        Know how shifts in supply and demand will change equilibrium price and quantity.

·        Understand how price floors and price ceilings work (remember ideas like minimum wage and rent ceilings).  In particular, when are they effective?  If they are effective do they lead to an efficient outcome, etc.

·        Understand production theory, namely when should marginal cost be equal to marginal revenue?  When is this not the case?  Is minimizing the marginal cost the best idea for profit maximization or is it something else?

·        Understand how taxes work.  How do they shift supply or demand?  What happens to equilibrium price and quantity?  Is it efficient?

·        Know how externalities affect the market, in particular how pollution from a firm creates a social marginal cost line and how it changes equilibrium price and quantity.  How can externalities be corrected?

·        Understand why a monopoly behaves the way it does.  Why is government regulation a good thing with certain types of monopolies?

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