Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted.

Microeconomics 2302

Potential questions and study guide for exam 3

6 of these will be on the exam

Potential questions are in Black Font. Study Guide stuff is in Red Font.

1. Technology, R & D, and Efficiency. a. Invention:

i. Thoroughly and completely explain Invention

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

iii. 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.

iv. 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. Innovation. i. What is it?

ii. For each of the types of innovation covered in the slides and audio: 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. For each of your examples 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.

Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted.

c. 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. 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. List and 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.

Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted.

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. Explain 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 how 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.

Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted.

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. Explain 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. Regulation

Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted.

i. List and explain 4 reasons in favor of federal government regulation of business. Include the economic consequences of each for the

economy and you individually.

ii. List and explain 4 reasons against federal government regulation of business. Include the economic consequences of each for the

economy and you individually.

iii. 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) d. Explain Social Regulation (purpose, problems, and economic impacts)

i. Pretty straight forward

6. Income inequality a. Please explain 6 factors that have contributed to increased income

inequality since 1969,

b. What are 6 results of the growing income inequality in America.

c. For each of the items listed above in part b, explain what might be done to eliminate the problems that cause growing income inequality

d. Explain how discrimination reduces domestic output and income, i. Look at the items under Discrimination in the notes and explain how

each contributes to the reduction of domestic output and income.

e. 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.

Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted.

f. 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. What is the most recent Federal Poverty Guideline for a family of 4?

c. Assume a household of 2 adults working at full time jobs paying minimum wage, with 2 elementary school age children. Please create a monthly

budget for this family and explain each budget line item. Remember to

take 15% off their gross earning for taxes. Explain some of the challenges

this family will face.

d. Here we are with around 4% unemployment rate or less. Why are so many people living in poverty in America? Where are they located

geographically? What about the racial and gender disparities?

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

e. 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.

8. Please select a bill currently in congress and provide an economic impact

analysis.

a. Provide a summary of the Bill, including the objective of the Bill. b. In your analysis of the Bill

i. Explain who will be helped and how. ii. Explain who will be hurt and how.

iii. Explain where the money will come from to fund the Bill. iv. Explain how the money will be spent. v. Explain the Economic impact of the Bill on the U.S. Economy.

Congress.gov is a good place to start. Please be thorough in your analysis. Try

to think about how the impacts of this legislation will work its way through our

economy and how it will impact people, businesses, the environment, etc. What

Creative Commons Attribution 4.0 License, CC BY Charles Hackner Houston Community College unless otherwise noted.

groups of people will be impacted and how? What industries will be impacted

and how? Etc. Be as thorough as possible. We need to be able to complete this

type of analysis for the crazy stuff congress does, before the bills get passed so

that we can either support them or get them stopped.