Study Guide for Exam 1
MULTIPLE CHOICE (40 @2 pts each)
Three important assumptions: know what they are and what they mean
Budget constraint: Attainable and unattainable combinations
Positive vs. normative statements; macroeconomics vs. microeconomics
Scarcity: what it is and what impacts does it have?
Opportunity costs (define, recognize, and calculate)
Factors of production
Production possibilities curve
What is it? What does it sho
Why is it shaped the way it is?
The law governing it
Identify points on, under, and beyond PPC (attainable, unattainable, optimum, non
Can the curve move/shift outward? Under which conditions?
Characteristics of market economies (focu
s on the role of the market and the government)
Characteristics of competition in the market economy
Command vs. market system
Five fundamental questions and how the market economy answers them
Law of demand
Law of supply
know them; be able to identify them
Including: Substitute vs. complement, normal vs. inferior goods
Supply curve (S): shape, direction, significance
Supply determinants: know them; be able to identify them
Equilibrium: know what it is and be able to identi
Know what shortage/surplus is
Shifts in Demand; Shifts in Supply
More on equilibrium and how policies could affect it (price ceiling/price floor)
Households income (the breakdown of where they come from) and expenditures (the breakdown of
households spend their income)
Legal types/forms of businesses
Include the advantages and disadvantages of the corporation as a form of business
The roles of government in a market economy
Include the roles that government pay in case of market failure
s (i.e., externalities, spillovers, public
Comparative advantage, specialization, and terms of trade (ch.5, p. 96
Be able to identify absolute and comparative advantages and calculate opportunity cost
Two topics of
macroeconomics and three goals of macroeconomics
Modern economic growth: what it is, what started it, its effects.
run output fluctuations; prices are “sticky” in the short run. Why?
ESSAY (2 @10 pts each)
Explain how, in market economy, society
’s quest in managing scarcity by making optimum choices via market
transactions lead to attempt to achieve efficiency. Also, explain the link between achieving efficiency and one
of the three goals of macroeconomics.
the question by explaining each important economic terms:
What is scarcity? Why does it necessitates choice?
What is a market economy? How does it cope with/manage scarcity?
What are market transactions and how can it lead to efficiency? (*Hint: Supply &
demand, price as a
signaling mechanism, equilibrium)
What is efficiency anyway? What are the two kinds of efficiency?
Explain one of the three goals of macroeconomics in your own words. How can having an efficient market
lead to fulfilling this goal?
sider the following information:
A national café chain began selling their gourmet coffee beans at supermarkets. The company sold 2 million
lbs of coffee beans the in 2008 at $10/lb. In 2009, the price rose to $12/lb and it sold 3 million lbs of coffee
beans. By the third year in 2010, the company sold a whopping 5 million lbs at $14/lb.
The information above seems to be in conflict with the law of demand. How could this be? Is the law of
demand violated in this case or are there external factors/determinants in play?
*Hint* Consider the following:
What does the law of
Is there a difference between a change (increase/decrease) in quantity demanded (Qd) vs. a change in
What ‘external’ factors/determinants (aside from price) that could have influenced the increase in sales of
coffee beans? Use
one of the examples from the list of demand determinants.
Link everything together and tell me a narrative about it.
It may help if you make a rough graph depicting this (don’t worry about the details and measurements if
you choose to graph).