Principles of Microeconomics
(Stone's text)

Review Guideline for Exam 1

Chapter 3. Supply and Demand

1. Market, basic component of a market
2. Demand; quantity demanded; demand schedule; demand curve; the law of demand; the determinants of demand (tastes, income, expectations, price of substitutes and price complements, number of buyers); changes in demand vs changes in quantity demanded.
3.. Supply; quantity supplied; supply schedule; supply curve; determinants of supply (technology, cost of resources, expectation, prices of related goods, number of sellers, taxes and subsidies, disaster); changes in supply vs changes in quantity supply.
4. Market equilibrium; equilibrium price; equilibrium quantity; shortage; surplus; changes in supply or demand leading to a new equilibrium price and new equilibrium quantity.

Chapter 4. Market Efficiency, Market Failure and Government Intervention

1. Requirements of an efficient market
2. Consumer and producer surplus
3. Market failures (asymmetric information; problem with property rights; contract enforcement is problematic; externalities; noncompetitive markets)
4. Price ceilings, price floors, and tax and deadweight loss.

Chapter 5. Elasticity

1. The price elasticity of demand (elastic, inelastic, perfectly elastic, perfectly inelastic, unit elastic). Relationship between elasticity of demand and total revenue.
2. The price elasticity of supply (elastic, inelastic, perfectly elastic, perfectly inelastic, unit elastic). Market period, short run and long run.
3. Elasticity and tax incidence, elasticity and deadweight loss.