Microeconomics Potential questions and study guide for exam

1. Technology, R & D, and Efficiency.

a. Thoroughly and completely explain Invention

i. Distinguish between invention as a process and invention as a result.

1. Should be pretty straight forward.

ii. We live on a planet with finite resources which makes continued economic growth difficult to maintain. If we are seeing economic growth rates flatten out, please explain how invention might be impacted by a slow growth /no growth economy, and what can we do about this problem? Be specific.

1. Discuss invention as a process and compare that to invention as a result. Give 2 examples of each, and discuss how each might be affected by a slow growth / no growth economy.

b. Explain Innovation.

i. What is it?

ii. For each of the typical types of innovation:

1. Provide 2 examples of each (that were not included in the slides or audio) and explain why these are good examples of those types of innovation.

2. Explain how these two types of innovation were used to drive up profits.

a. Discuss the 2 key factors required to drive up profits - drive down costs and drive up revenues.

b. Might want to include how new products gain customer acceptance, including the importance of the relationship between price and utility.

c. Process innovation is often used to get leverage on lowering costs, might want to discuss how impacts total product, ATC, and profit.

d. Some of the process innovations of Wal-Mart might be good to look into.

iii. Explain how our ability to do process and product innovation might be impacted by a slow growth / no growth economy, and what we can do about the problem.

1. How is innovation impacted during times of slow growth or no growth?

2. May have to consider what is required to actually deliver innovations to the market.

c. Explain Diffusion.

i. Define it,

ii. Explain how it works,

iii. Give 3 examples involving firms that have lead diffusion of some innovation and why these represent good examples of diffusion,

iv. Discuss how diffusion might be affected by a slow growth / no growth economy.

1. Since diffusion is not free, how might it be impacted by economies that are not growing or only growing slowly?

d. You work for Mr. Elon Musk and he has asked you to explain how his company can determine its optimal level of R&D spending.

i. Please explain the general concept of optimal level of R & D spending

ii. Explain the marginal cost and marginal benefit components

1. You have a good list of items in the slide set - just need to provide explanations of the items.

iii. Explain how the optimal level of R & D spending is computed.

1. Feel free to use graphs to support your explanation.

2. Don't forget to let him know that returns are expected, not guaranteed.

2. Technology, R & D, and Efficiency.

You are a business manager for Coca Cola and some new competitive soft drinks are being introduced with great customer acceptance.

a. Explain to your boss the fast second strategy.

b. Why and how Coke would use the fast second strategy to increase its economic profit

i. Discuss the why

ii. Discuss the how

iii. List and discuss 2 examples.

c. Explain to your boss how Coke can use the protection provided by patents, copyrights, and trademarks to increase their economic profits.

i. Discuss what each of the 3 protections apply to, and

ii. Discuss how each will help a firm achieve economic profits.

d. Explain to your boss how Coke can use their Brand to increase their economic profits.

i. Discuss the following and each can be used to increase a firms economic profit:

1. Brand-name recognition

2. Brand equity

3. Brand promise

4. Brand personality

e. Explain to your boss how technological advance increases productive efficiency and allocative efficiency.

i. Discuss the impact of technological advancements on productive and allocative efficiency.

3. The demand for resources

a. You are an Economics teacher. Please explain to your class the significance of resource pricing on resource allocation among:

i. Firms and industries,

ii. The determination of income,

iii. Include the impacts on the ability of a firm to achieve cost minimization.

1. Discuss how resource prices affect the ability of firms in an industry relative to their ability to acquire resources and the subsequent impact on output,

2. Discuss the impact of resource prices on the determination of income that results from the sale of those resources.

3. Discuss the impact of resources prices on the ability of firms to minimize costs.

b. Explain to the class the marginal productivity theory of resource demand and why businesses care about it.

i. State the assumptions

ii. Explain MRP and MRC, and the firms' rule for employing resources

iii. Be sure to explain the terms and what they mean to a business.

c. The determinants of resource demand.

i. Discuss the 3 determinants of resource demand

1. Changes in product demand

2. Changes in productivity

a. Quantities of other resources

b. Technological advance

c. Quality of the variable resources

3. Changes in the prices of other resources including:

a. The case of substitute resources - the substitution effect and the output effect

b. The case of compliments

4. The demand for resources.

a. Please thoroughly explain the determinants of the elasticity of resource demand.

i. Discuss the following:

1. Ease of resource substitutability

2. Elasticity of product demand

3. Ratio of resource cost to total cost

b. Please explain how a firm would determine the optimal combination of resources required to produce a given level of output.

i. Discuss / explain.

5. Government Regulation of business:

a. List and explain 4 reasons in favor of federal government regulation of business and 4 reasons against federal government regulation of business. Include the economic consequences of each for the economy and you individually.

i. You should be able to provide this. Might require a little research.

b. Explain why the effectiveness of antitrust laws changes through time.

i. Discuss the role of politics and elections

c. Explain Industrial Regulation (purpose, problems, and economic impacts) and Social Regulation (purpose, problems, and economic impacts)

i. Pretty straight forward

6. Income inequality

a. Please explain the factors that have contributed to increased income inequality since 1969,

i. Discuss each of the following as it contributes to increased income inequality.

1. Greater demand for high skilled workers

2. Demographic changes

3. International trade, immigration, and the decline of unionism

4. The great recession of 2007

5. Any other factors that you can identify

b. What are 6 results of the growing income inequality in America and what can we do to correct this growing problem?

i. For each of the items listed above, discuss what might be done to eliminate the problems that cause growing income inequality

c. Explain how discrimination reduces domestic output and income,

i. Look at the items under Discrimination in the notes and discuss how each contributes to the reduction of domestic output and income.

d. Explain the difference between Social Insurance Programs and Public Assistance Programs, and give 3 examples of each.

i. Social Insurance

1. What is it?

2. Explain the 3 examples relative to what they do for the beneficiaries of each program.

ii. Public Assistance

1. What is it?

2. Explain 3 of the examples relative to what they do for the beneficiaries of each program.

e. Discuss the pros and cons of reducing spending on these two types of programs relative to stimulating economic growth.

i. Some Google research should help with this.

7. On the subject of Poverty

a. Define poverty - check definition in notes, check google as well

b. Explain 5 factors that have contributed to the significant increase in the number of people in poverty today.

1. A bit of Google research should provide additional information.

c. Explain 5 things that need to be done to significantly reduce the number of people in poverty going forward.

1. Should be able to create some good ideas.