ECON 102 EXAM 1 STUDY GUIDE 1 General Information about the Exam ✓ Exam 1 is scheduled for Monday, September 27, 2021. ✓ The exam will be administered in our regular classroom during regular class time. ✓ The exam will cover chapters 1, 2, 3, and 4 ✓ The exam will comprise: o 20 multiple choice questions (worth 100 points) o 3 short-answer questions (100 points) ✓ Duration of test: regular class session (50 minutes). What you need to bring to the test: ✓ A pencil and eraser ✓ A basic calculator (must be nonprogrammable) ✓ I’ll give you a scantron for the multiple-choice questions What you cannot use on the test ✓ Books ✓ Notes ✓ Internet sources ✓ etc. Recommendations for studying for the exam ✓ Read the textbook chapters (at least once) – the relevant pages are listed on the course outline in the syllabus. ✓ Read the course packet material (and your class notes) for the chapters on the exam. ✓ Work through ALL the review questions for the relevant chapters ✓ Use my office hours if you still have trouble with any of the course content.ECON 102 EXAM 1 STUDY GUIDE 2 ✓ Review your quizzes and homework assignment STUDY GUIDE Chapter 1: The Nature of Economics ▪ Defining economics: o Understand the concept of scarcity o Understand the need to make choices as a consequence of scarce resources o Understand the meaning of resources in economics ▪ Types of resources (aka factors of production): o Land o Labor o Physical capital o Human capital ▪ Know the fundamental economic problems (or questions) o What to produce? o How to produce? o For whom to produce? ▪ Know the meaning of an economic system (and how it relates to answering the fundamental economic questions listed above) o Understand the key differences between a command and control economic system and a market (price) system.ECON 102 EXAM 1 STUDY GUIDE 3 ▪ Understand the meaning of marginal analysis (aka “marginalism” or “thinking at the margin”) o Understand and be able to identify marginal cost o Understand and be able to identify marginal benefit o Understand and be able to identify sunk cost o Understand the role of incentives in altering costs and benefits of specific actions ▪ The scope of economics: o Macroeconomics versus microeconomics o Positive economics versus normative economics Chapter 2: Scarcity and the World of Trade-offs ▪ Understand the meaning of trade-offs ▪ Understand the meaning of opportunity cost (and how it differs from trade-offs) ▪ Understand the simple production possibilities model o Be able to draw a simple production possibilities curve for a given set of production possibilities. o Understand how to calculate opportunity cost from a given set of production possibilities. o Understand the difference between constant opportunity cost and increasing opportunity cost. o Understand the reason why increasing opportunity cost occurs o Understand the meaning of (productive) efficiency and how it’s illustrated on the PPC.ECON 102 EXAM 1 STUDY GUIDE 4 ▪ Shifts in the PPC o Understand the concept of (long run) economic growth o Understand how economic growth is illustrated on the PPC o Understand the primary causes of long run economic growth (shifts in the PPC) – i.e. changes in resources and technology. ▪ Specialization and trade o Understand the value of specialization and trade o Understand the concept of “gains from trade” o Understand the concepts of absolute advantage and comparative advantage o Be able to determine the country (or individual) with a comparative advantage in the production of a goods from a set of production possibilities (see comparative advantage/absolute advantage questions on Homework 1) Chapter 3: Demand and Supply ▪ Define “demand” o Know the difference between “demand” and “quantity demanded” o Understand the law of demand o Be able to construct a demand curve from a set of prices and quantities demanded o Understand how you go from individual demand to market demand (horizontal summation of individual demand curves). o Understand the shift factors in demand (i.e. factors that cause a change in demand) o Be clear about the difference between a “change in demand” and a “change in quantity demanded”.ECON 102 EXAM 1 STUDY GUIDE 5 ▪ Define “supply” o Know the difference between “supply” and “quantity supplied” o Understand the law of supply o Be able to construct a supply curve from a set of prices and quantities supplied o Understand how you go from individual supply to market supply (horizontal summation of individual supply curves). o Understand the shift factors in supply (i.e. factors that cause a change in supply) o Be clear about the difference between a “change in supply” and a “change in quantity supplied”. ▪ Putting demand and supply together o Understand the concept of market equilibrium – equilibrium price and equilibrium quantity o Be able to identify and calculate the amount of surplus (or shortage) when the price is higher (or lower) than the market equilibrium price. o Know how to solve for the market equilibrium price and quantity from simple linear demand and supply equations. o You should also be able to draw the demand/supply curves represented by a set of linear equations and indicate the equilibrium price and quantity on the graph.ECON 102 EXAM 1 STUDY GUIDE 6 Chapter 4: Extensions of Demand and Supply ▪ Shifts in demand and supply (aka demand and supply shocks) o Understand the effects on equilibrium price and quantity of changes in demand (aka demand shocks) while supply is unchanged. o Understand the effects on equilibrium price and quantity of changes in supply (aka supply shocks) while demand is unchanged. o Understand the effects on equilibrium price and quantity of simultaneous changes (shifts) in demand and supply ▪ Price controls o Price ceiling (legal maximum price) – only effective if set below the market price ▪ A price ceiling set below the market (equilibrium) price creates a shortage o Price floors (legal minimum price) – only effective if set about the market price. ▪ A price floor set above the market (equilibrium) price creates a