ECN 212 Study Guide - Final Guide: Average Cost, Price Floor, Marginal Product
Arizona State University
ECN 212
Principles of Microeconomics
Spring 2018
Final
Prof: Patricia Ramirez De La Vina
EXAM GUIDE
Topics Included:
1. Principles of Microeconomics
2. Demand
3. Supply and Equilibrium
4. Equilibrium and Elasticity of Demand
5. Elasticity
6. Consumer Choice
7. Costs
8. Competitive Markets
9. Monopolies
10. Monopolistic Competition, Oligopolies, Game Theory
11. Demand Supply and Government Policies
12. TBD
Section 1 - Principles of Microeconomics
Principles of Microeconomics
1. People make decisions to maximize their personal benefit
2. Rational people think at the margin, making small changes to their current behavior
3. Trade-offs must occur to get what people want
4. Opportunity cost is the foregone value of the next highest alternative
5. Trade betters everyone because people can specialize
6. “The Invisible Hand” is the idea that by acting on their own self-interests, people
benefit society
7. An incentive is a motivation to take a certain action
Production Possibilities Frontier
Depicts an economy of two goods
Production Possibilities Frontier (PPF) of cars and computers
1. When the economy is producing at a point along the PPF it is maximizing its limited
resources
2. At Point A, 2200 computers and 600 cars are being made, while at point B 2000 cars
and 700 computers are being made
a. When the economy dedicates all its resources to making computers, 3000 can
be made. If all resources are put into producing cars, 1000 can be made
b. There is not a perfect trade-off between the two, which is why the PPF is
bowed outward
c. A technological improvement will allow the society to reach points outside of
the current PPF
Exercise Questions:
1.
An economy that produces only bread and petroleum jelly now discovers a new
source of oil. Assume oil is an input only in the production of petroleum jelly. Which
of the graphs in the figure above depicts the resulting shift of the PPC?
a. Figure A
b. Figure B
c. Figure C
d. None of the above
2. After she graduates high school, Annie decides to go to college. What’s her
opportunity cost?
a. The money she would have gotten from working
b. Happiness from hanging out with friends
c. The money she has to pay to go to college
d. Sleeping in
3. Suppose the cost of flying a 400-seat plane for an airline is $200,000 and there are 8
empty seats on a flight. If the marginal cost of flying a passenger is $100 and a
standby passenger is willing to pay $150, the airline should
a. Sell the ticket because the marginal benefit exceeds the average cost
b. Sell the ticket because the marginal benefit exceeds the marginal cost
c. Not sell the ticket because the marginal benefit does not exceed the marginal
cost
d. Not sell the ticket because the marginal benefit exceeds the average cost
Answers:
1. Oil is used solely to produce petroleum jelly, so we should expect a shift in the
amount of petroleum jelly that can be produced, while the amount of bread should
stay the same. Only Figure C shows a shift in petroleum jelly while bread stays the
same.
The answer is C.
2. Per Point 4, the opportunity cost of a choice is the foregone value of the next most
valuable choice. Options b, c, and d depict nonmonetary choices. Only a has a value.
The answer is A.
3. Per Point 2, rational people only make decisions when the marginal cost outweighs
the marginal benefit. This concept can be applied to firms as well, so the airline
should sell the ticket because it would make a net gain from selling the ticket to the
standby passenger.
Document Summary
Topics included: principles of microeconomics, demand, supply and equilibrium, equilibrium and elasticity of demand, elasticity, consumer choice, costs, competitive markets, monopolies, monopolistic competition, oligopolies, game theory, demand supply and government policies, tbd. An economy that produces only bread and petroleum jelly now discovers a new source of oil. Assume oil is an input only in the production of petroleum jelly. Which of the graphs in the figure above depicts the resulting shift of the ppc: figure a, figure b, figure c, none of the above, after she graduates high school, annie decides to go to college. Answers: oil is used solely to produce petroleum jelly, so we should expect a shift in the amount of petroleum jelly that can be produced, while the amount of bread should stay the same. Only figure c shows a shift in petroleum jelly while bread stays the same.
