Key topics you should know:
1. Idea of scarcity. Idea that secondary effects matter, people respond to incentives. Idea that economics operates on basis that if theory predicts correctly, accept it for now. Positive versus normative. "Economizing behavior." "Common fallacies:" -association is not causation; -fallacy of composition; -violations of ceteris paribus.
Property rights; what gets traded, implications of US-style property rights.
The PPC [Production Possibility Curve], what it means, what moves it. [More resources, better technology, better organization]
Comparative Advantage; applications with tables or examples of opportunity costs.
Different forms of organizing principle for the economy: markets, command, tradition ['rules'].
3. Markets, Demand, and Supply. D & S curves show quantities buyers want to buy/sellers want to sell at different prices of the good itself, everything else held constant; a change in the price changes those quantities. Equilibrium price shows value to consumer of last unit bought and lowest price at which sellers will sell that quantity.
Changes in conditions [ceteris paribus] producing shifts in D &/or S.
Only a change in the price of the good itself can move you along a D or S curve, i.e. change the quantity people want to buy or sell because the price of the good has changed. That is NOT changing Demand or Supply, which change if and only if, because something else changed, people would want to buy (Demand) or sell (Supply) a different quantity at an UNCHANGED price.
Shifts versus changes in amount buyers want to buy (quantity demanded) or amount sellers want to sell (quantity supplied); interrelated markets, substitutes [A instead of B, tea or coffee], complements [A with B, french fries and ketchup].
Applications: things that change demand, things that change supply, what one can and cannot conclude if both change at once. [Draw a diagram to help yourself; ask, if this happens, will the quantity people want to buy {sell} change (which way?) at a fixed price? If the answer is yes, demand {supply} has shifted; if no, it has not.]
Functions of a market system: prices as signals and incentives, they allocate resources and outputs, and determine incomes.
4. Public Goods as opposed to private goods; rival/non-rival consumption, feasible/non-feasible exclusion.
Externalities (positive and negative); effects on those not party to the transaction.
Economic efficiency [net benefits > net costs, efficiency increases]; idea of equity, distribution is a separate dimension from efficiency. Judgements about efficiency can be positive; judgements about equity [who gains, who loses] can only be positive in a descriptive sense, they have to be
Why and how markets will not be efficient with externalities or public goods or markets that are not competitive. [Competitive market: homogeneous good, perfect information, many sellers and many buyers, all small compared to the market]
Rational Ignorance, short-sightedness, and Special Interest effects.
5. Government Purchases vs Transfer Payments
Progressive/proportional/regressive taxes
Incidence of taxes, i.e. burden, who pays rather than who collected from
Collection costs, compliance costs, deadweight loss costs.
6. GDP - what it is. Expenditure on final goods, or cost of production (resource-cost, i.e. income to resources or factor inputs) approach to measurement.
Circular flow: output = income.
Final goods [Y = C + I + G + (X - M)] vs intermediate goods [fully used up in the production of other goods]; whether final or intermediate depends on use, who bought, not the kind of good.
'Money' or 'nominal' GDP vs 'real' GDP; price indices and the index number problem.
GDP [domestic, in geographic area] vs GNP [national, belonging to nationals, permanent residents]
Questions are more likely to ask you to distinguish between possible implications than regurgitate simple definitions. Chapter 7 will NOT be tested on this exam. The exam will be quite long -- about 60 multiple choice questions. Chapters 2, 3, and 6 will be much more emphasized than chapters 4 and 5. See the Coursebook for examples of the style of multiple choice question. Economics is best learnt by doing; the best way to prepare for this test and any other in economics is to work examples -- i.e. use the Coursebook.
BRING A PENCIL ON WEDNESDAY; BUBBLE NAME AND SOCIAL SECURITY NUMBER!