Study Guide Two - ECO 120 Preliminary Exam II STUDY GUIDE...

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ECO 120 Preliminary Exam II --- STUDY GUIDE ** Date of Exam*** Wednesday February 27, 2008 Location: Your usual classroom time and classroom location How will this study guide help me? ± The study guide poses questions – and also presents answers. Test yourself – you should be able to answer the questions posed and know the facts presented. ± Samples of exam questions are included at the end of this guide. Give them a try, and see how you do. The answers are included in the guide, but I really encourage folks to come to the economics lab for help too. What will the exam be like? What will it cover? ± The exam will be multiple choice and true/false. ± Question format, and difficulty, will be very similar to our homework and exam 1. ± The exam will cover Chapter 6, and Chapter 7 (and potentially parts of Chapter 7 appendix). What other resources can I use to prepare? ± Go to the book’s online resources (see the weblinks on WebCT). You can test yourself and see answers. ± If you have the Study Guide that comes with the book –use it! ± Have I mentioned the economics lab yet? ± Homework is a great review tool! Elasticities – as they relate to Demand – Week 5 – Chapter 6 pgs. 106-114 [See Homework #3] 1. Price Elasticity of Demand (Ed) a. What does it tell us? i. How much quantity demanded changes with a change in price ii. Why do we use percentage change in elasticity? b. What does the equation look like? c. Can you run through the equation? 2. What are the three categories of Ed? Both numerically and in words! a. Elastic (Ed >1) -- what does a perfectly elastic demand curve look like? b. InElastic (Ed<1) -- what does a perfectly inelastic demand curve look like? c. Unit-Elastic (Ed<1) -- what does a perfectly unit elastic demand curve look like?
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3. What are the four factors that determine a goods elasticity? a. Is the good essential? i. If it is essential, is the good likely to be more elastic, or more inelastic? b. Are there substitutes available? c. Is the good expensive? d. Passage of time i. I.e as time passes, does a good become more or less elastic? 4. Total Revenue Test [See Key Graph 1] a. Elastic Demand - a decrease in price will actually increase Total Revenue b. Inelastic Demand – an increase in price will decrease Total Revenue c. Unit Elastic – 5. Can you understand a graphical Representation of Total Revenue Test? (like key graph #1) 6. Income Elasticity of Demand a. Normal Goods vs. Inferior Goods (define numerically and in words) 7. Cross – Price Elasticity of Demand [pgs. 116-117] a.
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Study Guide Two - ECO 120 Preliminary Exam II STUDY GUIDE...

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