Here’s what I think about our first exam. It will cover chapters 1-5. There will be 5 questions each with parts. The problems will require some simple computations such as the ones we saw in class. Work lots of problems especially the ones in the homework!!!
Chapter 1: Economic decision making, what is microeconomics, marginal cost and marginal benefit, four pitfalls, distinction between positive and normative statements, economic models, the market model (the invisible hand). Expect questions on the pitfalls.
Chapter 2: Supply and demand curves; find equilibrium (using algebra); excess supply, excess demand (calculate teh amounts); total economic welfare or surplus– buyer’s share and seller’s share. How the supply and demand curve might shift due to various factors. What happens to equilibrium price and quantity in those cases? Appendix: the effect of a tax on supply-demand equilibrium.
Chapter 3: Rational consumer choice. Budget constraint, what is it, how to find the equation of it, or points on it, and what happens if price or income changes. The composite good– what is it, how is it used? How does budget constraint get to have a kink? consumer preferences, preference maps; what are the basic assumptions? What are indifference curves? What is the marginal rate of substitution? How do we find the preferred bundle chosen when we know the budget line also? (equation 3.3). What is a corner solution? What do indifference curves for perfect substitutes or perfect complements look like? And what does the optimal choice with a budget look like in those cases (recall the problem we did in class from the homework!). Application- food satmps and cash grants, explain it. Appendix: don’t pay any attention to it for the test.
Chapter 4: Individual and market demand. This is about the logical chain from the indifference map of utility to the the demand curve in a market of many individuals. How to generate the individual demand curve from a graph of the indifference curves and budget. What is the PCC? What is the ICC? what are normal and inferior goods, and how can we detect them in an indifference map? MOST IMPORTANT: income and substitution effects of a price change. Be able to explain in detail from a graph with points. Horizontal addition and aggregating individual demand curves. Know how to do it by algebra. (see slides or pp 122-124). VERY IMPORTANT: Price elasticity of demand: how to compute it, what does inelastic, elastic, elasticity 1 mean? How does elasticity relate to total revenue? What affects price elasticity of demand? What is income elasticity of demand, what is the formula, how computed? What is an Engel curve? What is cross-price elasticity of demand?
Chapter 5: Several applications of demand theory. Gas tax and rebate; Educational choice and vouchers. Know how to compute consumer surplus from a supply and demand graph, and how to determine the maximum annual membership charge. Changes in housing prices– are consumers always better off, and why? Bias in the CPI from a micro standpoint. Intertemporal choice, an important application. The permanent income and life cycle hypothesis– what is it?
Should be plenty.
Supply Chain and Logistics 