Changes

{{Economics_Lectures}}

{{Economics_Lectures}}

This lecture is review of the course, in preparation of the final exam.  A student who took this class in 2007 sent me the following feedback from college:

This lecture is the final review for this course, in preparation for the final exam.  A student who took this class in 2007 sent me the following feedback from college:

{{cquote|My microeconomics class has been almost all review for me, because of the similar class I took from Mr. Andy Schlafly ....  Although other students who attended public schools may have taken 'economics' before, they have struggled with microeconomics this semester, because their high school classes completely ignored the free-market and Austrian economics<ref>"Austrian economics" is an approach to economics that emphasizes the free markets, minimizing governmental interference, respecting private property rights, and promoting gold as a monetary standard.  Beware, however, that Austrian economics organizations are often more libertarian than conservative on social issues, and Austrian economics itself has been slow in incorporating new economic insights such as the Coase theorem.</ref> which are taught [in college].}}

{{cquote|My microeconomics class has been almost all review for me, because of the similar class I took from Mr. Andy Schlafly ....  Although other students who attended public schools may have taken 'economics' before, they have struggled with microeconomics this semester, because their high school classes completely ignored the free-market and Austrian economics<ref>"Austrian economics" is an approach to economics that emphasizes the free markets, minimizing governmental interference, respecting private property rights, and promoting gold as a monetary standard.  Beware, however, that Austrian economics organizations are often more libertarian than conservative on social issues, and Austrian economics itself has been slow in incorporating new economic insights such as the Coase theorem.</ref> which are taught [in college].}}

== Topics on Exam ==

== Topics on Exam ==

Here is a list of the topics on the CLEP exam, along with how many questions are asked about each topic (as a percentage of the overall exam), and comments:

Here is a list of the topics on the CLEP exam, along with how many questions are asked about each topic (as a percentage of the overall exam), plus tips about each concept:

{| class="wikitable"

{| class="wikitable"

|-

|-

|cost measures (e.g., ATC, AFC, AVC) || 10% || FC is total cost when output is zero; convert to average costs by dividing by output and remember that ATC=AFC+AVC; know when a firm should shut down

|cost measures (e.g., ATC, AFC, AVC) || 10% || FC is total cost when output is zero; convert to average costs by dividing by output.  Remember that ATC=AFC+AVC, and know when a firm should shut down.

|-

|-

|Government policy || 10% || ''unbiased'': price ceilings cause shortages and taxes cause social (deadweight) loss; <br>''biased'': several pollution questions and the Lorenz curve (see discussion below)

|Government policy || 10% || price ceilings cause shortages and taxes cause social (deadweight) loss; but beware of CLEP questions designed to make government regulation appear beneficial, as in reducing pollution

|-

|-

|Inputs to a Firm (espec. labor) || 10% || key here is applying logic and other concepts to reason back from product demand to a firm's need for labor (workers); know effects of minimum wage laws; might also be asked about capital

|Inputs to a Firm (espec. labor) || 10% || key here is applying logic and other concepts to reason back from product demand to a firm's need for labor (workers); know effects of minimum wage laws; might also be asked about capital

|-

|-

|Perfect Competition || 6% || costs and profits and price are lowest for this market: P=MC=ATC and "economic profits" are squeezed to zero. If price falls, shut down in short run when P<AVC; shut down in long run when P<ATC.

|Perfect Competition || 6% || costs and profits and price are lowest for this type of market. P=MC=ATC and "economic profits" are squeezed to zero. If price falls, shut down in short run when P<AVC; shut down in long run when P<ATC.

|-

|-

|Monopolistic Competition || 6% || can set its price above MC, but the low barrier to entry allows competitive forces that prevent long run profits and require P=ATC

|Monopolistic Competition || 6% || can set its price above MC, but the low barrier to entry allows competitive forces that prevent long run profits and require P=ATC

|-

|-

|Production Possibilities ||6% || trade-off among goods output; requires technological advance or other big change to reach points beyond the "frontier" (curve)

|Production Possibilities ||6% || trade-off among goods made by a nation; to reach points beyond the "frontier" (curve), it requires a technological advance or other big change

|-

|-

|Price Elasticity || 5% || measures how demand responds to price changes; "elastic" means big change in demand for a small change in price of good

|Price Elasticity || 5% || measures how demand responds to price changes; "elastic" means big change in demand for a small change in price of good

|-

|-

|Monopolies || 4% || the firm sets its price above marginal cost, but not higher than where MR=MC; economic profits are greater than zero; economic rent exists. P>MC. P>ATC.  

|Monopoly || 4% || the firm sets its price above marginal cost, but not higher than where MR=MC; economic profits are greater than zero; economic rent exists. P>MC. P>ATC.  

|-

|-

|Demand Curve || 4% || what the public will pay; all firms in all kinds of markets are restrained by the Law of Demand

|Demand Curve || 4% || what the public will pay; all firms in all kinds of markets are restrained by the Law of Demand

|MC || 4% || marginal cost, which equals price in perfect competition.  For a monopoly P>MC but equals MR=MC

|MC || 4% || marginal cost, which equals price in perfect competition.  For a monopoly P>MC but equals MR=MC

|-

|-

|Public Goods || 3% || know the difference between these and private goods: public goods cannot exclude people from using the good

|Public Goods || 3% || know the difference between these and private goods: public goods cannot exclude people from using the good without paying for it.

|-

|-

|Returns to Scale || 2% || think Wal-Mart for increasing returns to scale; think a restaurant for decreasing returns to scale

|Returns to Scale || 2% || think of Wal-Mart for increasing returns to scale; think of a kitchen for decreasing returns to scale ("too many cooks spoil the broth")

|-

|-

|Consumer Surplus || 2% || what someone was willing to pay above what the good actually cost

|Consumer Surplus || 2% || what someone was willing to pay above what the good actually cost

|Imperfect Competition || 2% || P>MC for this market, which is "allocatively '''in'''efficient" (is not efficient in the allocation of resources); it takes perfect competition to drive P down to MC

|Imperfect Competition || 2% || P>MC for this market, which is "allocatively '''in'''efficient" (is not efficient in the allocation of resources); it takes perfect competition to drive P down to MC

|-

|-

|Utility || 2% || Overall satisfaction.  Recall our problem about hiking and reading? Marginal utility is your next bit of utility.  Indifference curve shows trade-off in utility.

|Utility || 2% || overall satisfaction; recall our problem about hiking and reading. Marginal utility is your next bit of utility.  Indifference curve shows trade-off in utility.

|-

|-

|Cross-Price Elasticity || 2% || Comparing change in demand for one good due to change in price for a ''different'' good

|Cross-Price Elasticity || 2% || Comparing change in demand for one good due to change in price for a ''different'' good

|Cartel || 1% || an oligopoly that illegally agrees to fix (set) prices, as OPEC does

|Cartel || 1% || an oligopoly that illegally agrees to fix (set) prices, as OPEC does

|-

|-

|Price discrimination || 1% || charging different prices for the good; only possible if the market allows the firm to set its own price

|Price discrimination || 1% || charging different prices for the exact same good; only possible if the market allows the firm to set its own price

|}

|}

Some important topics are missing from the CLEP exam, such as the invisible hand, free market, charity, transaction costs, the time value of money, interest rates, the Coase theorem and Gresham's Law.  The reason is bias.  For example, once a student realizes how inefficient transaction costs are, he or she will probably not like government regulations much!  Instead of these concepts, the CLEP exam adds lots of questions about government regulation to try to make regulation look good.

Some important topics are missing from the CLEP exam, such as the invisible hand, free market, charity, transaction costs, the time value of money, interest rates, the Coase theorem and Gresham's Law.  The reason is exam bias.  For example, once a student realizes how inefficient transaction costs are, he or she will probably not like government regulations much!  Instead of these concepts, the CLEP exam adds lots of questions about government regulation to try to make regulation look good.

But other than bias in the selection of question, the CLEP exam does not have bias in its answers.  The rare exceptions are a few questions about government regulation.  For these few questions, the CLEP exam pretends that government regulation can make a market ''more'' efficient.  This is untrue, as proven by the Coase theorem, but the CLEP exam writers want people to think that government can somehow improve on the free market.

But other than bias in the selection of question, the CLEP exam does not have bias in its answers.  The rare exceptions are one or two questions about government regulation.  For these few questions, the CLEP exam may pretend that government regulation can make a market ''more'' efficient.  That is untrue, as proven by the Coase theorem, but the CLEP exam writers want people to think that government can somehow improve on the free market.

=== Exam Bias Concerning Regulation and Efficiency===

=== Exam Bias Concerning Regulation and Efficiency===