Mid-Term One Study Guide

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Mid-Term & Final Exam Study Checklist
I have no way of knowing for sure exactly what the professor will ask of you on the exm, but based on previous exams, lectures & the book, I think that focusing on the following subjects will help you do well.
 
Drawing Charts – the difference between a C & an A grade is often the correct labeling of your graphs. Be sure that you label the axes (price, quantity etc), you label your curves (D, S, or D' to D'' & S' to S''. Also, if you shift demand & supply curves you may need to show shifts in Price and Quantity (P' to P'' &/or Q' to Q''). Page 85 has good examples to emulate.

Chap 2
Definition of Opportunity Costs
Importance of Ceteris Paribus (pg 24)
Production Possibilities Frontier (graphs & tables pgs 25 - 30) be able to draw one with correct axis labeled. Example, be ready to explain its ‘bowed-out’ shape
Opportunity Costs -
be able to calc OC given PPF data (table on pg 31)
Comparative Advantage – given PPF data or opportunity costs data, be able to state who has CA in what (pg 31 – 33)
Gains of Trade – given opportunity costs & comparative advantage, be able to calculate the number amount for gains of trade (table on pg 31)
The Circular Flow Diagram of Economy – be ready to answer questions about this (text on pg 35 & table)
 
Chap 3
Demand Curve – given demand schedule, be able to draw demand curve. Be sure to label curve and axes correctly. Be ready to explain why the demand curve is downward sloping. (table on pg 63, text on page 63 & 64)
Shifts in the Demand Curve – be prepared to be given a real-world example & asked to explain whether or not the demand curve shifts. If a shift does occur, be prepared to explain which way the curve shifts, & what will happen to equilibrium price & quantity. (pg 66 & 67, figure 3-3 & 3-4)
Know difference between shift in demand curve and movement along demand curve (sometimes the question will try to trick you – pg 64 to shifts...)
Examples of Shifts – get to know how each will shift the demand curve pg 66 - 69
Compliments VS Substitutes be able to pick one from the other, and explain how changes in the price of one good will shift the demand curve it’s compliment/substitute (pg 67)
Normal vs Inferior goods/services – given a real world example, be able to differentiate & then given a change in income, be able to explain which way the demand curve will shift (pg 68)
Supply Curve – similar to the demand curve to-do list above, be prepared to be given a supply schedule and asked to draw a supply curve from scratch. That will require you to label the axes and curve correctly. Understand why the supply curve is upward slopping. (figure on pg 72)
Know the difference between a shift in the supply curve and movement along the supply curve (pg 73 – questions may try to trick you on this)
Shifts in the Supply Curve – know the examples on pgs 75-77. Be ready for questions that ask you to explain intuition behind the factors that cause the shift, and be ready to draw what happens to the curve, price & quantity (pg 74)
Combining Supply & Demand - Market Equilibrium – get ready to explain the forces that drive prices and quantity back to equilibrium – pg 81 - be ready to be given an example and asked to draw one of those two graphs
Demand & Supply Shifts – given an example from any one of the shifts listed on pgs 75-77 or pgs 66-69, be ready to draw & correctly label the shifts in demand and/or supply curves, & to explain the dynamics on price and quantity. 
Definitely understand what is happening on pg 84 & 85
 
Chap 4
Consumer Surplus – given data, be able to calculate the consumer surplus. And given a change in prices, be ready to explain if that increases or decrease the CS (figures on pgs 96 & 97)
Producer Surplus – similar to Consumer Surplus, given data be able to calc the PS. And given a change in prices be ready to explain how the affects PS. (see figures and tables on pgs 100-104)
CS & PS Together – understand what’s going on in figures 4-10 thru 4-13
Equity & Efficiency – in a very general and basic way, know why markets can be good (pg 111) & why markets might be bad (pg 112).
 
Chap 5
Given a demand and supply schedule, be prepared to draw and correctly label curves and axes of a market equilibrium (figure on pg 119) – based on that, make a statement about the equilibrium price and quantity.
Price Ceiling – be able to draw this. Given data, be able to calculate the shortage created by such a price ceiling. Generally be sure you understand what is going on with figure 5-2 on pg 120. Be aware of examples of price ceilings, rent control to name one.
Deadweight Loss – understand the concept, and be able to draw the graph (pg 121)
If you have trouble with the concept, the example on page 122 is good and very exam like. This was a question on Mid-Term 1 several years ago.
Consequences of Price Ceiling – advantages and disadvantages of price ceilings (skim pg 123-125)
Price Floor – given demand and supply schedule, be ready to draw a price floor (figures on pg 127 & 128). Be able to calculate the surplus & generally understand the intuition of what’s going on. Deadweight Loss (pg 130) & consequences & reasons for price floor (pg 130-132). Be ready with examples of a price floor, several soft-commodities come to mind.  
Quota – given demand and supply schedules, plus info on the quota, be able to draw the Deadweight loss “wedge” (pg 134-135) Calc Shortage. Know a few examples, taxis in NYC for one. Know that quotas assume the quota level is less than equilibrium quantity (otherwise….)
I suspect you’ll have to draw at least two of the above three types of market interventions. Beware
 
Chap 6
Mid-Point Method – you need to have this method for finding elasticity based on two prices & two points memorized (pg 146)
Elasticity of Demand – given a demand schedule, or alternatively, given points on a demand curve, be ready to calculate the elasticity of demand.  (146-147)
Elasticity of Supply - same as for demand, be prepared to calculate this given the four numbers required.
Inelastic vs Elastic – (148 & 149) Understand what is meant when it is said, ‘a good has inelastic demand’. If given examples of goods or services (say, gasoline vs diamonds), be ready to explain which is inelastic, which is elastic, and why.
See page 152-154 for characteristics that determine elasticity.
Cross Price Elasticity – have the equation memorized (top of pg 156). If given two goods, be ready to explain if the cross price elasticity is positive or negative, and what that means. (substitutes vs compliments)
Income Elasticity of Demand – have the equation memorized. (pg 156 & 157). This measures how ‘normal’ or how ‘inferior’ a good/service is. Given a good or service, be ready to explain if the Income Elasticity of Demand is positive or negative & what that means.
Elasticity of Supply – know what that is (pg 159 - …) & know factors that affect the degree of elasticity of supply (pg 160 & 161)
 
 
Note on Chap 7 & 8 – Note that Chap 7 & 8 have not really been on Professor Fung’s first-exam the previous two times he taught the class – he seems to save the material for mid-term-two. Thus if you suspect he intends to cover that material, I’d go over the following guide focusing on the ability to replicate the graphs and the analysis discussed in lecture. If you don’t think he’ll cover the material, I’d cover the study material last, or for the next exam.
 
Chap 7
Incidence of a Tax (pg 171, read full text, and compare figures 7-2 through 7-5)
Does a tax on suppliers or consumers affect the market price or quantity? (pg 170-171)
How does elasticity of demand affect the incidence of a tax? pg 171
Elasticity of supply and the tax incidence pg 172
Deadweight Loss and elasticities pg 181 – expect a paragraph describing how inelastic or elastic a good or service is, and to be asked if the supply or demand side would be expected to pay a higher part of the incidence.
Costs & Benefits of Different Taxes (pg 175-176, figure 7-7)
Fairness vs Efficiency – know about this generally pg 183-184
 
Chap 8
Comparative Advantage is Gains from Trade. Expect a question like the opportunity costs questions in chapter 2, but with countries and international trade. pg 196-200 closely
Understand what’s going on in Figure 8-6 thru 8-9. This may require reading closely 205-209
Figures 8-7 & 8-9, given a scenario, be prepared to recreate these graph analyzes, and explain which polygons are producer and consumer surpluses.
pg 209-211 cover where the professor might source exam question scenarios
Trade Protection – Figure 213. Be prepared to replicate this graph given a specific exam example. Note the values for consumer, producer and government surplus, and change in surplus. Learning this may require closely reading pg 211-214


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