Principles of Microeconomics Exam 1 Exam 1 will contain 10 multiple choice questions and one short answer problem (graphing). You will need an 80% on the multiple choice and you must get the problem completely correct to pass the exam. The following concepts will be the subject of test 1: 1. You will need to know the distinction between demand and quantity demanded. 2. You will need to know the law of demand and the law of supply. 3. You will need to know what factors affect the quantity demanded of a product. 4. You will need to be familiar with what factors shift demand and what factor(s) cause a movement along the demand curve. 5. You will need to know what factors affect the quantity supplied of a product. 6. You will need to be familiar with what factors shift supply and what factor(s) cause a movement along the supply curve. The topics above will often appear in the exam as application questions. For example, a question might state something like: Steak is a normal good. What would you expect to occur if consumer’s income increases? A. The demand curve shifts left. B. The demand curve shifts right. C. Supply shifts left. D. Supply shifts right. E. Neither demand or supply would shift. The problem will require you to graph either supply or demand and ask you to illustrate a change in some variable. If you are comfortable shifting supply and demand, and you can illustrate a change in price on a curve, you should do fine on this problem. Be sure that you fully label the graph! This includes the axes, the curve, an arrow indicating the change. Exam 2 Exam 2 will contain 10 multiple choice questions and a problem. As before, 80% on the MC and a correct problem are needed to pass. Exam 2 will be about finding the market equilibrium price and quantity. You will need to be able to properly identify the correct price and quantity, or identify a surplus or shortage if the market is not in equilibrium. In addition, you will also need to know how the equilibrium price and quantity change if S or D shifts. Be sure that you can also discuss what occurs if both curves shift simultaneously. The problem will give you information that will lead you to shift S, D, or both simultaneously. You need to be able to show this and identify what will happen to price and quantity. Example problems for exam 2: 1. You Sexy Thing Inc. is a company manufacturing “tighty whitey” underwear. A popular men’s magazine writes an article informing men that only children under 12 should wear these garments as they are not considered appealing to women. At the same time the article is released, the market price of cotton increases. Cotton is the primary input used to make tighty whiteys. You cannot discern which effect on the tighty whitey market is greater. Graph the market for Tighty Whiteys and illustrate the effect of the article and the simultaneous change in cotton prices on the market. Explain what happens to price and quantity demanded. Be sure to label each curve, the axis, initial equilibrium, market title, new equilibrium, and the direction the curve(s) shift. 2. The Angry Birds utilize slingshots to defend their nest against hostile pigs. The wooden slingshots can be classified as a normal good. The Birds recently received a boost to their income as a result of the commercial success of their games sold on smartphones. At the same time, the price of wood increased due to forest fires throughout the country. Graph the market for the slingshots and illustrate the effects from the facts above. Explain what happens to price and quantity demanded. Be sure to label each curve, the axis, initial equilibrium, market title, new equilibrium, and the direction the curve(s) shift. Exam 3 This exam will focus on elasticity. You will need to be familiar with elasticity of demand, cross- elasticity, and income elasticity. In particular, the multiple choice questions will come from the following topics: 1. Definition of elasticity of demand 2. Calculation of elasticity of demand (you should be able to calculate this given data on p and q) 3. What do the following terms mean: inelastic, elastic, unit elastic. 4. What do the graphs of elastic and inelastic demand look like? 5. On a linear demand curve, you should be able to identify the regions of the curve that are elastic, unit elastic, and inelastic. 6. You should know what factors make a good more or less elastic. 7. You should be able to discuss what happens to total revenue if price increases or declines based on the elasticity of the good. 8. You should be able to calculate income elasticity and interpret the results (normal or inferior) 9. You should be able to calculate cross-elasticity and interpret the results (complement, substitute, or unrelated.) For the problem, you will basically need to show whether total revenue increases or declines based on the elasticity of the good (like we demonstrated in class). Here is an example problem: The Popular Pimp, LLC is a business engaged in manufacturing gold bracelets. These bracelets have many substitutes manufactured by competing firms Goodfella Jewelry, Inc. and Female Accessories for Men, LLC. While some consumers like these bracelets, they are not necessary for any particular purpose. The Popular Pimp decides to significantly increase prices. Illustrate the effect of the price change. Be sure to fully label the graph and illustrate the gains and losses in total revenue associated with the change. What happens to total revenue? Did you make demand elastic or inelastic? Why?
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