The exam will test core concepts from your core courses.  The exam will consist of multiple-choice and short answer/problem questions.  The use of graphs and other analytical tools will be stressed, particularly in the written answers.   You will have three hours to complete the examination.

Topics upon you will be tested include (but are not limited to)

MICROECONOMICS:

1. The concept of relative scarcity, relative price and opportunity cost.

2.  The basic notion of static and comparative static equilibrium analysis.

3.  The Theory of Consumer Choice:

• Preference function, indifference curve, cardinal versus ordinal measures of utility, marginal rate of substitution, diminishing marginal rate of substitution, income and substitution effects of price changes, normal and inferior goods.
• The equi-marginal condition for utility maximization.
• The notion and relevance of consumers surplus.
• The consumption-leisure choice of the consumer and the derivation of the labor supply curve.
• Consumer time preference and the decision to save and borrow.
• The Theory of the Firm:
• The relationships between the production technology of the cost structure of the firm.  For example, the association of the law of diminishing marginal product with increasing marginal cost of production.
• The dichotomy between short-run and long-run.
• The differences between returns to scale and returns to a variable input.
• The association of the firm’s supply and its marginal cost curves (functions).
• The equi-marginal conditions for the short-run and long-run profit maximization of a competitive firm.
• The irrelevance of fixed cost to a firm’s decision to continue or discontinue its operation.
• The notion and relevance of producers surplus.
• The demand for factor of production (labor) and the notion of derived demand.
• The notion of economic rent.
• The nature of the long-run supply curve of a competitive industry.

4.  Elasticities of demand and supply and their innumerable theoretical and public policy applications.

5.  The allocative efficiency of a perfectly competitive market system in the long-run;

  P = MPC = MPB

6.  Pricing of output under alternative market structures:

•   Pure monopoly, monopolistic competition, and oligopoly.
•   Why monopoly pricing (P > MC) causes a dead-weight loss.
•   Monopolistic competition and excess capacity.
•   Oligopoly, Nash equilibrium and Game theory.

7.  The trade-off between efficiency and equity.

8.  Market failure in the presence of externalities:

• The notion of positive and negative externalities
• The root causes of externalities.
• Externalities and resource misallocation.

9.  Public intervention to remedy market imperfection and/or market failure: by direct means (regulations, quotas, price-floor, price ceiling) and through financial incentives or disincentives (taxes and subsidies).

MACROECONOMICS

1.    The macroeconomic accounting system: gross national product (GNP), gross domestic product (GDP), national income, and disposable income; macroeconomic accounting identities; and real vs. nominal measures.

2.    The concept of business cycles.


3.    The concept of inflation.  What is it?  How can it be measured?  Who benefits and who loses from inflation?

4.    The concept of unemployment.  How is it defined and how is it measured?  What types of unemployment are there and what do we mean by full employment?  What are the social costs of unemployment?

5.    In the classical model: the determination of all real macroeconomic variables (real output, employment, and real wage) on the supply side of the economy; the determination of the interest rate by the demand and supply for loanable funds; and the determination of the price level through the equation of exchange.  Finally, understanding the policy implications of this model.

6.    What are the functions of money? What is meant by the concept of liquidity?

7.    What  factors affect the demand for money? What is the relationship between interest rates and bond prices?

8.    What is the equation of exchange? What does this model say about monetary policy?

9.    What do we mean by the IS curve? What do we mean by the LM curve?  What factors affect the slope of these curves and what factors shift this curves.

10.    What is the role of wage rigidity in explaining unemployment? How do menu costs and sticky wages affect the short run aggregated supply curve?

11.    What are the main differences between the classical and Keynesian models in terms of IS, LM, AD, LRAS, SRAS? What are the assumptions of each model and what are the implications for adjustment in both the short run and long run?

12.   What does the Phillip Curve mean?

13.    How the Keynesian model reduces to neoclassical economics in the long run.

14.    What is the difference between devaluation, revaluation, depreciation and appreciation? Be able show using supply and demand curves.

15.     What are the determinants of net exports? Be sure to show how these factors affect the IS curve.