Exam 1 Study Guide - ECO 120 Preliminary Exam I - STUDY...

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1 ECO 120 Preliminary Exam I --- STUDY GUIDE ** Date of Exam*** Friday February 8, 2008 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. I will post the answers, 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. ± The exam will cover chapters 1, 2, and 3. 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? First Principles & Graphing Review (Week 1 - 1/14-1/18) - Chapter 1 1. Three parts of the Economic Problem a. Objective b. Alternatives c. Constraints 2. Key players in the Economy a. Consumers/Individuals b. Government c. Firms 3. Key Point : Economics is about allocating resources under conditions of scarcity! 4. Normative vs. Positive Economics a. Normative – judgment about what SHOULD be b. Positive – describing economy, what IS occurring 5. Graphing [see Key Graph #1] a. Independent vs. Dependant variables a) Independent – comes 1 st
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2 b. Direct vs. Inverse Relationship 6. Why is Ceteris Parabis so important? a. Let’s us look at the relationship between two variables, and only those two variables. No intrusion from ‘other things’. 7. What constrains consumers? a. Budget Line – can you draw one? [see Key Graph #2] 8. What happens with an increase or decrease in income? a. Which line shows an increase in income? Which shows a decrease? b. Rule to remember: Above the budget line (i.e. to the right) – not attainable, below the budget line (i.e. to the left) – attainable. c. Which lines show a decrease in the price of both A & B? a) Which lines shows an increase in price of both A &B? d. Remember – if you can buy more, this means you have greater purchasing power. Look at this line. You can buy more of A and B. This means your purchase power increased – either because your income increased, or because the prices of both goods went down. 9. Other things to consider: a. How would your graph change if the price of only one good decreased? 10. Opportunity Cost – next best option (what are you giving up?) a. Examples from class: Owning a parking lot in Boston, Studying for an exam b. Opportunity cost is a relative cost c. In economics, this is the cost we consider – what are you giving up to make or produce or buy the next unit of a good. 11. Key Words [for this section]
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This homework help was uploaded on 04/18/2008 for the course PHY 121 taught by Professor Smith during the Spring '08 term at University of Maine Orono .

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Exam 1 Study Guide - ECO 120 Preliminary Exam I - STUDY...

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