Course Category

Elasticity

• Calculate and interpret the elasticities of demand (price elasticity, cross elasticity, income elasticity) and the elasticity of supply, and discuss the factors that influence each measure.
• Calculate elasticities on a straight-line demand curve, differentiate among elastic, inelastic, and unit elastic demand and describe the relation between price elasticity of demand and total revenue.

Efficiency and Equity

• Explain allocative efficiency, marginal benefit and marginal cost, and demonstrate why the efficient quantity occurs where marginal benefit equals marginal cost.
• Distinguish between the price and the value of a product and explain the demand curve and consumer surplus.
• Distinguish between the cost and the price of a product and explain the supply curve and producer surplus.
• Discuss the relationship between consumer surplus, producer surplus, and equilibrium.
• Explain: 1) how efficient markets ensure optimal resource utilization and 2) the obstacles to efficiency and the resulting underproduction or overproduction, including the concept of deadweight loss.
• Explain the two groups of ideas about the fairness principle (utilitarianism and the symmetry principle) and discuss the relation between fairness and efficiency.

Markets in Action

• Explain market equilibrium, distinguish between long-term and short-term impacts of outside shocks, and describe the effects of rent ceilings on the existence of black markets in the housing sector and on the market’s efficiency.
• Describe labor market equilibrium and explain the effects and inefficiencies of a minimum wage above the equilibrium wage.
• Explain the impact of taxes on supply, demand, and market equilibrium, and describe tax incidence and its relation to demand and supply elasticity.
• Discuss the impact of subsidies, quotas, and markets for illegal goods on demand, supply, and market equilibrium.

Organizing Production

• Explain the types of opportunity cost and their relation to economic profit, and calculate economic profit
• Discuss a firm’s constraints and their impact on achievability of maximum profit
• Differentiate between technological efficiency and economic efficiency, and calculate economic efficiency of various firms under different scenarios
• Explain command system and incentive system to organize production, the principal-agent problem, and measures a firm uses to reduce the principal-agent problem
• Describe the different types of business organization and the advantages and disadvantages of each
• Characterize the four market types
• Calculate and interpret the four-firm concentration ratio and the Herfindahl-Hirschman Index, and discuss the limitations of concentration measures
• Explain why firms are often more efficient than markets in coordinating economic activity

Output and Costs

• Differentiate between short-run and long-run decision time frames
• Describe and explain the relations among total product of labor, marginal product of labor, and average product of labor, and describe increasing and decreasing marginal returns
• Distinguish among total cost (including both fixed cost and variable cost), marginal cost, and average cost, and explain the relations among the various cost curves
• Explain the firm’s production function, its properties of diminishing returns and diminishing marginal product of capital, the relation between short-run and long run costs, and how economies and diseconomies of scale affect long-run costs

Perfect Competition

• Describe the characteristics of perfect competition, explain why firms in a perfectly competitive market are price takers, and differentiate between market and firm demand curves;
• Determine the profit maximizing (loss minimizing) output for a perfectly competitive firm, and explain marginal cost, marginal revenue, and economic profit and loss;
• Describe a perfectly competitive firm’s short-run supply curve and explain the impact of changes in demand, entry and exit of firms, and changes in plant size on the long-run equilibrium;
• Discuss how a permanent change in demand or changes in technology affect price, output, and economic profit.

Monopoly

• Describe the characteristics of a monopoly, including factors that allow a monopoly to arise, and monopoly price-setting strategies
• Explain the relation between price, marginal revenue, and elasticity for a monopoly, and determine a monopoly’s profit-maximizing price and quantity
• Explain price discrimination, and why perfect price discrimination is efficient
• Explain how consumer and producer surplus are redistributed in a monopoly, including the occurrence of deadweight loss and rent seeking
• Explain the potential gains from monopoly and the regulation of a natural monopoly

Monopolistic Competition and Oligopoly

• Describe the characteristics of monopolistic competition and oligopoly
• Determine the profit-maximizing (loss-minimizing) output under Monopolistic Competition and Oligopoly, explain why long-run economic profit under Monopolistic Competition is zero, and determine if monopolistic competition is efficient
• Explain the importance of innovation, product development, advertising, and branding under monopolistic competition
• Explain the kinked demand curve model and the dominant firm model, and describe oligopoly games including the Prisoners’ Dilemma

Demand and Supply in Factor Markets

• Explain why demand for the factors of production is called derived demand, differentiate between marginal revenue and marginal revenue product (MRP), and describe how the MRP determines the demand for labor and the wage rate
• Describe the factors that cause changes in the demand for labor and the factors that determine the elasticity of the demand for labor
• Discuss the role of the present value technique in determining the demand for capital
• Explain the factors that influence the supply of capital
• Differentiate between renewable and non-renewable natural resources and describe the supply curve for each
• Differentiate between economic rent and opportunity costs

Monitoring Cycles, Jobs, and the Price Level

• Describe the phases of the business cycle, define an unemployed person, and interpret the main labor market indicators and their relation to the business cycle
• Define aggregate hours and real wage rates, and explain their relation to gross domestic product (GDP)
• Explain the types of unemployment, full employment, the natural rate of unemployment, and the relation between unemployment and real GDP
• Explain and calculate the consumer price index (CPI), describe the relations between the CPI and the inflation rate, and explain the main sources of CPI bias.
• Explain the factors that influence the supply of capital
• Differentiate between renewable and non-renewable natural resources and describe the supply curve for each
• Differentiate between economic rent and opportunity costs

Aggregate Supply and Aggregate Demand

• Explain the factors that influence real GDP and long-run and short-run aggregate supply, explain movement along the long-run and short-run aggregate supply curves (LAS and SAS), and discuss the reasons for changes in potential GDP and aggregate supply
• Explain the components of and the factors that affect real GDP demanded, describe the aggregate demand curve and why it slopes downward, and explain the factors that can change aggregate demand
• Differentiate between short-run and long run macroeconomic equilibrium, and explain how economic growth, inflation, and changes in aggregate demand and supply influence the macroeconomic equilibrium and the business cycle
• Compare and contrast the Keynesian, Classical, and Monetarist schools of macroeconomics.

Money, Banks, and the Federal Reserve

• Explain the functions of money
• Describe the components of the M1 and M2 measures of money, and discuss why checks and credit cards are not counted as money
• Describe the economic functions of and differentiate among the various depository institutions, and explain the impact of financial regulation, deregulation, and innovation
• Discuss the creation of money, including the role played by excess reserves, and calculate the amount of loans a bank can generate, given new deposits
• Explain the goals of the U.S. Federal Reserve (Fed) in conducting monetary policy and how the Fed uses its policy tools to control the quantity of money, and describe the assets and liabilities on the Fed’s balance sheet
• Describe the monetary base, and explain the relation among the monetary base, the money multiplier, and the quantity of money

Money, Interest, Real GDP, and the Price Level

• Explain the factors that influence the demand for money, and describe the demand for money curve, including the effects of changes in real GDP and financial innovation.
• Explain interest rate determination and the short run and long run effects of money on real GDP.
• Discuss the quantity theory of money and its relation to aggregate supply and aggregate demand.

Inflation

• Differentiate between inflation and the price level, and calculate an inflation rate.
• Describe and distinguish among the factors resulting in demand-pull and cost-push inflation, and describe the evolution of demand-pull and cost-push inflationary processes.
• Explain the effects of unanticipated inflation in the labor market and the market for financial capital.
• istinguish between anticipated and unanticipated inflation, and explain the costs of anticipated inflation.
• Explain the impact of inflation on unemployment, and describe the short-run and long-run Phillips curve, including the effect of changes in the natural rate of unemployment.
• Explain the relation among inflation, nominal interest rates, and the demand and supply of money.

Fiscal Policy

• Explain supply-side effects on employment, potential GDP, and aggregate supply, including the income tax and taxes on expenditure, and describe the Laffer curve and its relation to supply-side economics
• Discuss the sources of investment finance and the influence of fiscal policy on capital markets, including the crowding-out effect
• Discuss the generational effects of fiscal policy, including generational accounting and generational imbalance
• Discuss the use of fiscal policy to stabilize the economy, including the effects of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier
• Explain the limitations of discretionary fiscal policy, and differentiate between discretionary fiscal policy and automatic stabilizers

Monetary Policy

• Discuss the U.S. Federal Reserve’s primary goal of price stability, the secondary goal of maintaining sustainable real GDP growth, and the intermediate targets of monetary policy, and compare and contrast the policies that can be used to achieve price level stability
• Compare and contrast fixed-rule and feedback-rule monetary policies to stabilize aggregate demand, and explain the problem of monetary policy lags
• Discuss the fixed-rule and feedback-rule policies to stabilize aggregate supply in response to a productivity shock and a cost-push inflation shock
• Discuss the importance of policy credibility in monetary policy implementation
• Compare and contrast the new monetarist and new Keynesian feedback rules.

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