Principles of Microeconomics Exam Info
The Principles of Microeconomics exam covers material that is usually taught in a one-semester undergraduate course in introductory microeconomics, including economic principles that apply to the behavioral analysis of individual consumers and businesses. You will be required to apply analytical techniques to hypothetical as well as real-world situations and to analyze and evaluate economic decisions. You're expected to demonstrate an understanding of how free markets work and allocate resources efficiently, how individual consumers make economic decisions to maximize utility, and how individual firms make decisions to maximize profits. You must be able to identify the characteristics of the different market structures and analyze the behavior of firms in terms of price and output decisions. You should also be able to evaluate the outcome in each market structure with respect to economic efficiency, identify cases in which private markets fail to allocate resources efficiently, and explain how government intervention fixes or fails to fix the resource allocation problem. It is also important to understand the determination of wages and other input prices in factor markets, and be able to analyze and evaluate the distribution of income.
Knowledge and Skills Required
Basic Economic Concepts10%
- Scarcity, choice, and opportunity cost
- Production possibilities curve
- Comparative advantage, specialization, and trade
- Economic systems
- Property rights and the role of incentives
- Marginal analysis
The Nature and Functions of Product Markets55%
15%–20% Supply and demand
- Market equilibrium
- Determinants of supply and demand
- Price and quantity controls
- Elasticity
- Price, income, and cross-price elasticities of demand
- Price elasticity of demand and total revenue
- Price elasticity of supply
- Consumer surplus, producer surplus, and market efficiency
- Tax incidence and deadweight loss
5%–10% Theory of consumer choice
- Total utility and marginal utility
- Utility maximization: equalizing marginal utility per dollar
- Individual and market demand curves
- Income and substitution effects
10%–15% Production and costs
- Production functions: short and long run
- Marginal product and diminishing returns
- Short-run costs
- Fixed cost, variable cost, average cost, marginal cost, and total cost
- The relationship between productivity and marginal cost
- Long-run costs and economies of scale
- Long-run cost minimizing input combination
23%–33% Firm behavior and market structure
Profit
- Accounting versus economic profits
- Normal profit
- Profit maximization: MR=MC rule
Characteristics of different market structures
Perfect competition
- Profit maximization
- Short-run supply and shut-down decision
- Firm and market behaviors in short-run and long-run equilibria
- Efficiency and perfect competition
Monopoly
- Sources of market power
- Profit maximization
- Inefficiency of monopoly
- Price discrimination
- Natural monopoly
Oligopoly
- Interdependence, collusion, and cartels
- Game theory and strategic behavior with payoff matrix
- Dominant strategies and Nash equilibrium
Monopolistic competition
- Product differentiation and role of advertising
- Profit maximization
- Short-run and long-run equilibrium
- Excess capacity and inefficiency
Factor Markets6%
- Derived factor demand
- Marginal revenue product
- Labor market and firms' hiring of labor
Market Failure and the Role of Government8%
Externalities
- Marginal social benefit and marginal social cost
- Positive externalities
- Negative externalities
- Remedies
Public goods and private goods
- Excludability, rivalry, and free-rider problem
- Provision of public goods
Public policy to promote competition
- Antitrust policy
- Regulation
Income distribution
- Income inequality
- Sources of income inequality
- Lorenz curve and Gini coefficient