Section 1: The Professor's "Cheat Sheet"
Based on your Midterm analysis, the exam will be split into visual graphs, table calculations, and definitions. Here is exactly what to study.
1. Must-Draw Graphs (Visual Reference)
Concave shape = Increasing Opportunity Cost. Points inside = Inefficient.
Stage 1: AP rises.
Stage 2: Rational Zone (MP positive but falling).
Stage 3: MP negative.
MC cuts AC and AVC at their minimum points. AFC gets smaller as Q increases.
Profit Max at MR = MC. If P > ATC, firm makes profit (green area).
2. The "Cost Table" Template
Memorize this table structure. You will likely be given Q and TC (or TFC/TVC) and asked to fill the rest.
| Q | TFC | TVC | TC | MC |
|---|---|---|---|---|
| 0 | 100 | 0 | 100 | - |
| 1 | 100 | 50 | 150 | 50 |
TC = TFC + TVC
MC = (New TC - Old TC) / (New Q - Old Q)
ATC = TC / Q
3. GDP & Unemployment Math
Nominal GDP
Current P × Current Q
Real GDP
Base P × Current Q
GDP Deflator = (Nominal / Real) × 100
(Unemployed / Labor Force) × 100
Note: Labor Force = Employed + Unemployed (Looking)
Section 2: Detailed Chapter Summaries (The "Safety Net")
Chapter 1: Basics of Economics
Core Concepts
- Definition: Science of efficient allocation of scarce resources to satisfy unlimited wants.
- Micro vs Macro: Micro = individual units (firms/households); Macro = aggregates (inflation/growth).
- Positive vs Normative: Positive = Facts ("what is"); Normative = Opinions ("what ought to be").
- Scarcity: Universal problem (Resources < Wants). Not same as shortage (Shortage is temporary).
The "Big Three" Questions
- What to produce? (Allocation)
- How to produce? (Technology/Labor vs Capital)
- For whom to produce? (Distribution)
Production Possibilities Frontier (PPF)
Shows combinations of two goods an economy can produce with fixed resources.
- Points on curve: Efficient (Full employment).
- Inside curve: Inefficient (unemployment or underutilization).
- Outside curve: Unattainable (unless growth occurs).
- Shape: Concave to origin (Bowed out) due to increasing opportunity cost (resources are specialized).
- Shifts: Outward (Growth/Tech), Inward (Disaster).
Chapter 2: Demand & Supply
Demand
Inverse relationship between Price and Quantity Demanded (Down sloping).
- Income: Normal Goods (Income↑ Demand↑) vs Inferior Goods (Income↑ Demand↓).
- Tastes & Preferences.
- Price of Related Goods: Substitutes (Pepsi/Coke) vs Complements (Car/Fuel).
- Expectations (Future price) & Number of Buyers.
Supply
Direct relationship between Price and Quantity Supplied (Upward sloping).
- Input Prices (Cost of production: Wages, Raw Materials).
- Technology (Better tech = Supply↑).
- Taxes (Supply↓) & Subsidies (Supply↑).
- Weather (Agri products).
Elasticity
- Price Elasticity (Ed): %ΔQ / %ΔP.
- Elastic (|Ed| > 1): Luxury, many substitutes (Graph: Flat).
- Inelastic (|Ed| < 1): Necessity, few substitutes (Graph: Steep).
- Income Elasticity: Positive = Normal, Negative = Inferior.
- Cross Elasticity: Positive = Substitutes, Negative = Complements.
Chapter 3: Consumer Behavior
Two Approaches
Utility is measurable (Utils).
Law of Diminishing MU: As you consume more, extra satisfaction falls.
Equilibrium: MUx/Px = MUy/Py
Utility cannot be measured, only ranked.
Uses Indifference Curves.
Equilibrium: MRSxy = Px/Py (Slope of IC = Slope of Budget Line)
Indifference Curves (IC) Properties
- Negative slope (Trade-off).
- Convex to origin (Diminishing MRS).
- Higher IC = Higher satisfaction.
- Cannot intersect (Transitivity violation).
Budget Line
Shows affordable combinations.
- Shift Outward: Income Increase or Prices Decrease.
- Rotation: Price of one good changes.
Chapter 4: Production & Cost
Production (Short Run)
- Stage I: MP > AP (AP rising). Inefficient (Fixed input underutilized). Ends when AP is Max.
- Stage II (Rational Zone): AP > MP (both falling but positive). Efficient zone. Starts at Max AP, ends when MP=0.
- Stage III: MP is Negative. Irrational. Starts when MP < 0.
Costs
- Explicit Cost: Monetary payment (Wages, Rent).
- Implicit Cost: Opportunity cost of owned resources (Foregone Salary).
- Economic Cost: Explicit + Implicit.
- Accounting Profit: TR - Explicit.
- Economic Profit: TR - (Explicit + Implicit).
MC, AC, AVC are U-shaped due to Law of Diminishing Returns. AFC is hyperbola (always falling).
Chapter 5: Market Structure
| Feature | Perfect Comp. | Monopoly | Monopolistic | Oligopoly |
|---|---|---|---|---|
| Firms | Many (Large no.) | One (Single) | Many | Few (Dominant) |
| Product | Identical (Homogeneous) | Unique (No close subs) | Differentiated | Either |
| Entry | Free/Easy | Blocked (Barriers) | Easy | Hard (Barriers) |
| Price Control | Price Taker (P=MR) | Price Maker | Some | Mutual Dep. |
Profit Max Rule: P = MR = MC
Shut Down Point: Price < AVC (can't cover variable costs)
Break-Even Point: Price = AC
- Legal (Patents, Copyrights)
- Resource Control (Owning key input)
- Economies of Scale (Natural Monopoly - lower cost for one firm)
Chapter 6: Macroeconomics
National Income
- GDP: Value of final goods produced within borders (Location). Excludes intermediate goods.
- GNP: Produced by nationals (Ownership) regardless of location. GNP = GDP + NFI.
- 3 Approaches: Expenditure (C+I+G+Xn), Income, Product (Value Added).
- Real vs Nominal: Real is adjusted for inflation (Base year prices). Nominal uses current prices.
Macro Problems
- Frictional (Voluntary, between jobs, fresh grad)
- Structural (Skills mismatch, tech change)
- Cyclical (Recession, low demand)
- Demand Pull (Too much money chasing too few goods)
- Cost Push (Supply shock, input prices rise)