STUDY GUIDE: FINAL EXAM

Where and when: Terrace 122 Monday 8 a.m.

Overview of the Final (ch.s  1, 9, 10, 13, 17 and 19 in the Goodwin Text)

   The structure of the final will be similar to previous exams. There will be six sections: Public Purpose Organizations, Exchange and Transfer, Income Distribution, Consumption and Well-Being, The Labor Market and Contrasting Economic Ideas. Each of these sections will have three or more fill-in questions or short-answer essays. The six sections will account for 75 percent of the exam grade. Additionally, there will be one big essay that counts 25 percent. The essay will be based upon what you have learned in microeconomics, but there will be no right or wrong answer. A tightly reasoned argument should be what you work to achieve. The question will come from one of the questions listed below.

Sample Questions for Essays: [Do not repeat the question in your answer]

  1. "And so many of the people in the arena here, you know, were underprivileged anyway, this is working very well for them." In the context of this quote, discuss the issue of redistribution and transfer, distinguish between transfers and exchange, and explore the gains and problems with transfers.

   2. Conservative economists who held the  "old utility theory" had a problem with reconciling the theory of diminishing marginal utility and the distribution of income. What was that problem and what was their solution?

   3. The United States government has traditionally embraced a private market economy but over the last century it has increasingly added regulatory and direct provisioning functions. Discuss why the government has found it necessary to interfere in the private market sector and identify some of the regulatory agencies that were created. The current administration has moved to reverse this history by privatizing (or attempting to) many functions previously undertaken by the government. Cite at least one example of privatization of a government function. Does that mean government has grown smaller? Why or why not?

  4. "Recall that in the traditional neoclassical model, the only actors are firms and households." Comment on why this is a simplistic model, what a more realistic model would look like, and how the realistic model undermines the notion of a free market system of rational actors engaging in optimizing behavior with perfect information.

  5. Nike is accused of shipping jobs overseas and apple growers in Vermont ship laborers in from Jamaica to work the harvest. If there were Americans who would take these jobs at the minimum wage, should they be given first choice? What is the proper role of government in this dispute? Is there a basic right to a decent wage? If business will do anything for a profit, then, as Michael Moore says, why doesn't General Motors sell crack cocaine?

6. The largest corporation (revenues) in the world has a direct economic interest in the Iraqi war. Discuss how those economic interests are served by the war and how the consumption patterns of the American people are connected to this enterprise. (Does it help to know that the original name of the invasion was Operation Iraqi Liberation? Hint: It's in the acronym.) What, if anything, can be done through regulation to make such wars unnecessary?

7. What are the advantages and disadvantages of maintaining a system of worldwide free trade? Discuss this in the context of our current economic crisis.

Concepts/Terms to Understand

1.        Open Access Resources (non-excludable and sometimes non-diminishable)

2.        Progressive and regressive taxes (particular examples as well)

3.        Transfer (one way) versus exchange (two way). How taxes can represent both.

4.        Production possibilities curve (value of slope = opportunity cost)

5.        Comparative advantage and specialization (a country specializes in the commodity that has the lowest opportunity cost)

6.        Consumer sovereignty

7.    Ownership rights (what cannot be owned, how are ownership rights constrained?)

8.        Lorenz Curve and Gini Ratio (value for perfect equality = 0 and perfect inequality = 1)

9.     Old Utility Theory (and problem it posed for income distribution) versus New Utility Theory.

10.     Opportunity cost

15.     Piece rate payment versus hourly wage payments (difference in motivation & monitoring costs)

16.     Negative and positive externalities

17.     Terms of Trade (when countries agree to an exchange rate of X number of good A for X number of good B -- based upon the relative opportunity costs and specialization, both countries should benefit from trade)

18.     Shares of total income earned by bottom 20 percent and richest 5 percent of income recipients.

19.     More is better (M.I.B.)

20.     Pareto optimum (or efficiency)

21.     Optimizing economic behavior (satisfaction, income, profits et al)

22.     Progressive and. regressive tax

23.     Absolute versus relative deprivation

24.     Regulatory versus Direct Provisioning Function of public purpose organizations

25.  Rights of ownership (how are they conditioned or circumscribed?)