Microeconomics Exam Study Guide: Key Topics and Concepts

Exam Overview

• Number of Questions: 45 questions on the draft

• Format: Multiple choice

• Tools Allowed: Scantron, bring pencil, no calculators

Exam Content Breakdown

By Chapter

• Chapter 1: 3 questions

• Chapter 2: 3 questions

• Chapter 3: 3 questions

• Chapter 4: 5 questions

• Chapter 5: 6 questions

• Chapter 6: 8 questions

• Chapter 7: 10 questions

• Chapter 8: 10 questions

• Chapter 9: 10 questions

• Chapter 10: 10 questions

By Question Type

• Definition/Concept/Small Calculation (approx. 30 questions)

• Solve from a Table

• Solve from a Graph

Key Microeconomics Topics

Overview of Graphs to Know

• Market Supply and Demand

  • Find Equilibrium (E)

  • Find Consumer Surplus (CS), Producer Surplus (PS), with price control

  • Draw and interpret shifts in supply and demand

• Marginal Analysis

  • Find Marginal Cost (MC)

  • Find Marginal Price (MP)

  • Find Marginal Utility (MU)

• Market Supply and Demand Side by Side

  • With two firms

  • With two people represented on one line

• Supply and Demand with Trade

  • When Exporting

  • When Importing

  • With a Tariff

  • Find changes in CS, PS, Government Revenue, Deadweight Loss (DWL)

• Supply and Demand with Externalities

  • Positive or Negative Externalities

  • Find Deadweight Loss (DWL)

• Monopoly Firms

  • Find Deadweight Loss (DWL)

  • Find Consumer Surplus (CS)

  • Find Producer Surplus (PS)

  • Compare DWL to Perfect Competition

Key Concepts and Definitions

Consumer Surplus (CS)

Consumer Surplus is the difference between what consumers are willing to pay for a good and what they actually pay. It is represented by the area below the demand curve and above the market price.

• Formula: $CS = \int_{0}^{Q^*} D(q) dq - P^* Q^*$

• Example: If the market price of a product is $10 and a consumer is willing to pay $15, the consumer surplus is $5.

Producer Surplus (PS)

Producer Surplus is the difference between the price producers receive for a good and the minimum price at which they are willing to sell. It is the area above the supply curve and below the market price.

• Formula: $PS = P^* Q^* - \int_{0}^{Q^*} S(q) dq$

• Example: If a producer is willing to sell at $8 but receives $10, the producer surplus is $2.

Deadweight Loss (DWL)

Deadweight Loss refers to the loss of total surplus that occurs when the market is not in equilibrium, often due to price controls, taxes, tariffs, or monopolies.

• Formula: $DWL = \frac{1}{2} \times (Q_{efficient} - Q_{actual}) \times (P_{demand} - P_{supply})$

• Example: Imposing a tax on a good reduces the quantity traded, creating a deadweight loss.

Marginal Cost (MC)

Marginal Cost is the additional cost incurred by producing one more unit of a good or service.

• Formula: $MC = \frac{\Delta TC}{\Delta Q}$

• Example: If total cost increases from $100 to $120 when output increases from 10 to 12 units,$MC = \frac{20}{2} = 10$ per unit.

Marginal Utility (MU)

Marginal Utility is the additional satisfaction gained from consuming one more unit of a good.

• Formula: $MU = \frac{\Delta TU}{\Delta Q}$

• Example: If total utility increases from 50 to 60 when consumption increases from 5 to 6 units, $MU = 10$.

Market Equilibrium

Market Equilibrium occurs where the quantity demanded equals the quantity supplied, determining the market price and quantity.

• Formula: Set $Q_d = Q_s$ and solve for $P^*$ and $Q^*$.

• Example: If $Q_d = 100 - 2P$ and $Q_s = 20 + 3P$, set $100 - 2P = 20 + 3P$ to solve for $P^*$.

Additional Info

• Graphs and tables are essential for visualizing supply and demand, surplus, and deadweight loss.

• Be prepared to interpret and solve problems using both graphical and tabular data.

• Understanding the effects of trade (exporting, importing, tariffs) and externalities (positive and negative) is crucial for exam success.

• Comparing monopoly outcomes to perfect competition helps illustrate efficiency and welfare implications.