Review:

 

Chapters 1 and 2.

 

Understand the idea of constrained optimization.

 

Definitions of economics.

 

Role of marginal analysis.

 

Economics as a way to explain. Also used to predict.

 

What is a market?

 

What are the conditions that lead to a perfectly competitive market?

 

How is one to interpret a demand curve?

 

What influences demand?

 

What is the difference between movement along a demand curve and a shift in a demand curve?

 

How is one to interpret a supply curve?

 

What is the difference between movement along a supply curve and a shift in a supply curve?

 

How do we solve for the market equilibrium?

 

How do price ceilings and price floors impact the market equilibrium, and how do they lead to excess supply and excess demand?


Chapter 3

 

How do you calculate and interpret price elasticity of demand?

 

How does elasticity vary along a demand curve.

 

Cross price elasticity substitutes and complements.

 

Supply elasticity.

 

Income elasticity normal good, inferior good.

 

Contrast between short run and long run elasticities.

 

What leads one good to be more inelastic than another good in reality?

 

Specific and ad valorem taxes, and noting the equilibrium.

 

Incidence, and equivalence.

 

Elasticity and tax strategy (revenue generation vs. inhibiting consumption).

 


Chapters 4 and 5.

 

Premise of consumer choice theory: 1) preferences exist 2) constraints exist 3) well being is maximized subject to constraints.

 

Properties of preferences (Completeness, Transitivity, More is better than less including free disposal)

 

Properties of indifference curves (further from origin is better, there exists one for each bundle, can not cross, slope downward).

 

MRS (slope of indifference curve)

 

Why does marginal utility diminish as you consumer more of a good?

 

Contrast indifference curve for a perfect substitute and a perfect complement.

 

Utility is ordinal or cardinal?

 

What is in a budget constraint?

 

What is an opportunity set?

 

How are budget lines and opportunity sets to be interpreted?

 

What is the MRT (and how does it relate to the price ratio)?

 

How does a change in a price impact the budget line?

 

How does a change in income impact the budget line?

 

What is the optimal bundle and how is it defined?

 

Be able to rule out points in relation to each other to identify the optimal bundle.

 

State the different ways we can express conditions that characterize the optimal bundle.

 

What is the difference between a corner solution and an interior solution?

 

Understand the impact of a constrained transfer program such as the food aid example.

 

How do we derive a demand curve from the price consumption curve?

 

How do we derive the market demand curve from the individual demand curves?

 

How do we derive an income consumption curve?

 

What is the relationship between PC / IC curves and shifts vs. movement along a demand curve?

 

Can both goods be inferior in a two good world?

 

How do we decompose the change in quantity brought about by a change in the price of the good?

 

What is the substitution effect?

 

What is the income effect?

 

What is the total effect?

 

What is a Giffen good?