INTERMEDIATE MICROECONOMICS
FINAL EXAM REVIEW QUESTIONS WITH
100% CORRECT ANSWERS; GRADED
A+
Slope of the Budget constraint - ANS-MRSxy: change in X/change in Y. how much x
you will give up for one more y
Giffen good - ANS-extremely inferior, price decreases and people buy less
price elasticity of demand - ANS-will always be negative. E<-1 elastic. E>-1 inelastic. E
= -1 unit elastic.
Income elasticity of demand - ANS-% change in income/ % change in Q. positive
normal good, negative inferior good, IE>1 superior good
Cross price Elasticity of Demand - ANS-% change in Q of X/ % change in price of Y.
Substitues positive, complements negative.
Neoclassical assumptions - ANS-people are rational
people have unlimited willpower
people are self interested
Critisisms of Behavioral Economics - ANS-no single theory
aggragate is of more interest than individual
paternalistic implications
may hinder individual freedoms
Risk averse vs. risk neutral vs. risk preference - ANS-diminishing MU, Constant MU,
Increasing MU
Nash Equilibrium - ANS-a set of strategies for each player that are the best response to
the other player's strategy
Ronald Coase "nature of the firm" - ANS-A firm is the most efficient, least cost way to
organize production
Isoquant - ANS-a curve that shows all possible combination of inputs to achieve the
same out put. Slope = MRTS lk, marginal rate of technical substitution. the amount by
, which one input can be reduced when one unit of another input is added to keep Q
constant
Economic Cost - ANS-Accounting cost + opportunity cost (ex: forgone rent, income,
interest)
Isocost Curve - ANS-Curve that shows the amount of inputs for a certain cost. Like a
budget constraint for firms. Slope: ratio of input prices -W/V=MRTS lk= MPl/ MPk
Marginal Revenue Price Elasticity Formula - ANS-MR= P(1 + 1/Epq)
Perfect Competition - ANS-Many buyers and sellers
identical product
perfect information
no barriers to entry or exit
price taker
Short Run Decisions - ANS-Produce or Shutdown
Long Run Decisions - ANS-Enter/ exit/ stay in the industry?
if enter/stay with what size firm?
if enter/stay produce how much?
Pareto Efficient - ANS-Efficient allocation of resources such that no trade an be made
that would make one individual better off with out leaving another individual worse off.
Allocation Efficiency: MRS xy = MRT xy
Production Efficiency: MRTS X lk = MRTS Y lk
Exchange Efficiency: MRS A xy = MRS B xy (edgeworth box)
Monopoly - ANS-One Seller
Unique Product
Significant legal and/or technical barriers to entry
imperfect information
Price Searcher
Price Discrimination - ANS-Selling identical products at different prices to different
consumers
Perfect Price Discrimination - ANS-Selling each unit of output for the maximum that the
buyer is willing to pay for it
3rd Degree Price Discrimination - ANS-Selling units of output to different markets.
Benefits the more elastic consumer.
Nonlinear pricing - ANS-Selling quantities at different per unit prices
FINAL EXAM REVIEW QUESTIONS WITH
100% CORRECT ANSWERS; GRADED
A+
Slope of the Budget constraint - ANS-MRSxy: change in X/change in Y. how much x
you will give up for one more y
Giffen good - ANS-extremely inferior, price decreases and people buy less
price elasticity of demand - ANS-will always be negative. E<-1 elastic. E>-1 inelastic. E
= -1 unit elastic.
Income elasticity of demand - ANS-% change in income/ % change in Q. positive
normal good, negative inferior good, IE>1 superior good
Cross price Elasticity of Demand - ANS-% change in Q of X/ % change in price of Y.
Substitues positive, complements negative.
Neoclassical assumptions - ANS-people are rational
people have unlimited willpower
people are self interested
Critisisms of Behavioral Economics - ANS-no single theory
aggragate is of more interest than individual
paternalistic implications
may hinder individual freedoms
Risk averse vs. risk neutral vs. risk preference - ANS-diminishing MU, Constant MU,
Increasing MU
Nash Equilibrium - ANS-a set of strategies for each player that are the best response to
the other player's strategy
Ronald Coase "nature of the firm" - ANS-A firm is the most efficient, least cost way to
organize production
Isoquant - ANS-a curve that shows all possible combination of inputs to achieve the
same out put. Slope = MRTS lk, marginal rate of technical substitution. the amount by
, which one input can be reduced when one unit of another input is added to keep Q
constant
Economic Cost - ANS-Accounting cost + opportunity cost (ex: forgone rent, income,
interest)
Isocost Curve - ANS-Curve that shows the amount of inputs for a certain cost. Like a
budget constraint for firms. Slope: ratio of input prices -W/V=MRTS lk= MPl/ MPk
Marginal Revenue Price Elasticity Formula - ANS-MR= P(1 + 1/Epq)
Perfect Competition - ANS-Many buyers and sellers
identical product
perfect information
no barriers to entry or exit
price taker
Short Run Decisions - ANS-Produce or Shutdown
Long Run Decisions - ANS-Enter/ exit/ stay in the industry?
if enter/stay with what size firm?
if enter/stay produce how much?
Pareto Efficient - ANS-Efficient allocation of resources such that no trade an be made
that would make one individual better off with out leaving another individual worse off.
Allocation Efficiency: MRS xy = MRT xy
Production Efficiency: MRTS X lk = MRTS Y lk
Exchange Efficiency: MRS A xy = MRS B xy (edgeworth box)
Monopoly - ANS-One Seller
Unique Product
Significant legal and/or technical barriers to entry
imperfect information
Price Searcher
Price Discrimination - ANS-Selling identical products at different prices to different
consumers
Perfect Price Discrimination - ANS-Selling each unit of output for the maximum that the
buyer is willing to pay for it
3rd Degree Price Discrimination - ANS-Selling units of output to different markets.
Benefits the more elastic consumer.
Nonlinear pricing - ANS-Selling quantities at different per unit prices
