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Exam 1 Study Guide (11 pages)

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Exam 1 Study Guide


This study guide covers all that we talked about in lecture. Major themes include demand, supply, indifference curves, individuals and markets

Study Guide
The University of Oklahoma
Econ 1123 - Princ. of Econ-Micro

Unformatted text preview:

Exam # 1 Study Guide Lectures: 1 - 10 Lecture 1 (Junuary 12) Concepts covered: Economic Analysis- We begin to make our Economic Analysis with Observations that become data then we develop explanations (theories) then we test the theories(Empirical) -> More Data -> More theories -> more empirical testing-> etc. Model Building- An economic model is a stylized representation of reality. Ceteris Paribus- In empirical data, many economic conditions are changing at the same time. The simplifying assumption of ceteris paribus means that we focus on one KEY relationship at a time and all other economic conditions held conceptually constant. Definitions: Efficiency- (Positive Economics) is doing the best with what you’ve got Equity-(Normative Economics) is dealing with what is fair or just. Productive Efficiency- producing goods at the lowest possible cost Allocative Efficiency- distributing goods to the people who value them the most Labor- human abilities used to produce material goods and services Capital- human made aids to production (examples: machinery, tools, factories—goods used to produce other goods) Land- all natural resources useable in production Entrepreneurship- human resources and technology that bring all of these other economic resources together, entrepreneurs also bear risk Note: A key assumption is the entrepreneurs try to maximize profits. The goal is to maximize the total revenues and minimize the total costs. Good ideas will produce positive profits and bad ideas will produce negative profits. Lecture 2 (January 14) Concepts covered: Characteristics of Competitive Markets- A. Many independently active buyers and sellers B. Individual buyers and sellers have no control over market price “price takers” ECON 1123 1st Edition C. Freedom of Entry and Exit into and out of the market (no technological and institutional barriers to entry and exit) D. Highly homogeneous products Characteristics of Imperfectly Competitive Markets- A. Fewer independently acting buyers and sellers B. Some control over market price C. Restrictions on entry or exit D. Heterogeneous products (not all the same quality, price) Market Structures- A. Pure Competition: many sellers, homogeneous products B. Monopolistic Competition: several sellers, differentiated products C. Oligopoly: Few Sellers, differentiated products D. Pure Monopoly: One Seller, Unique Products Note: In any of these market structures, the sellers objective is to maximize the profit as decided by comparing marginal revenues (MR) with marginal costs (MC). Choosing at the Margin- your choice is based on a benefit versus cost comparison. If the benefit> the cost then the action should be taken. You compare marginal benefit (MB) to the marginal cost (MC) Definitions: Market- An institutional arrangement for the exchange of economic goods and services Output Markets- outputs of economic goods and services being exchanged for money (Buyers of outputs are households; suppliers of outputs are firms) Resource Markets- economic resources are exchanged for money (Demanders of resources are firms; sellers of resources are households) Household- an individual, but not necessarily just one person, it could be a family) Firms- competitive firms. Monopolistically or oligopolistically (The suppliers of goods the households need)

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