MicroFinalReview2011 - Final Review Microeconomics Note...

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Final Review Microeconomics Note: Small font means not directly asked about on Final (but important information to truly grasp the key points of the chapter) Chapter 1 Normative/ Positive distinction: Value judgments or opinion will make a statement normative. The assumptions of market theory: atomistic participants, free to low cost information, and negative externalities are minimized. Chapter 2 What is a point inside the PPC? Unemployment, unused resources, overcapacity What does it mean to move from a point inside the PPC to a point on the PPC? Employment of previously unemployed resources. This is the most important shock to understand – representing an increase or decrease of unemployment in the PPC graph. What does it mean for a PPC to shift; what can cause a shift in or out? A shift is a change in a country’s total productive capacity. Employing unused resources is not a shift. Acquiring additional resources (more people enter the labor force looking for work) or improved technology that makes current resources more productive will shift the PPC right. More human capital (education, skills, training) for the labor force will shift the PPC to the right. A reduction in productive capacity, like a natural disaster or epidemic (Plague in early European History) will shift the PPC left (inward). Chapter 3 Advantages and disadvantages of the 3 business types - know disadvantages and advantages of the corporate form of business organization relative to sole proprietorships, partnerships, and corporations. Corporations have unique disadvantages like double-taxation and the principal-agent problem. One manifestation of the principal-agent problem is managers who seek sales maximization rather than profit maximization. The stockholders’ (owners’) number one goal is profit maximization because that is how they get dividend or capital gains. Chapter 4 Demand, the slope of the curve and how that indicates the Law of Demand. Demand determinants and know that while most of these influences on demand will shift the curve if they change, price changes are only movement along the same curve (called a change in quantity demanded NOT a change in demand). 1
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Final Review Microeconomics Supply also has several determinants that will shift it, and again price changes will only cause movement along the curve (called a change in quantity supplied). Relative vs. Money or Absolute prices - Relative price changes are the observed change in a particular good’s price, minus the inflation rate (rate of change in prices over all goods in the economy). If the inflation rate is not subtracted, the observed price change is nominal or “money” as opposed to a “real” (relative) price change. Chapter 5
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MicroFinalReview2011 - Final Review Microeconomics Note...

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