Available Skills for Finance and Economics Foundations

Institutions can select the skills to be included in the students’ assessment. Students are only tested on skills selected by their institution. For example, some of our academic clients have removed all skills related to Microeconomics and only kept the Finance entries.

Finance and Economics Foundations consists of one or more questions to assess each skill and instructional web pages to teach and review each skill.

Principles:

  1. Distinguish between microeconomics and macroeconomics
  2. Identify the economic units examined by microeconomics (individuals, firms, markets)
  3. Identify the implications of scarce resources
  4. Distinguish between normative and positive analysis
  5. Distinguish between real and nominal values
  6. Identify differences between accounting costs and economic costs
  7. Identify the opportunity cost of a decision
  8. Describe the nature of mutually beneficial exchange
  9. Define risk neutral
  10. Define risk averse
  11. Identify the difference between accounting profits and economic profits

Supply and Demand:

  1. Define the law of demand
  2. Distinguish between firm-specific demand and market demand
  3. Describe the income effect on demand
  4. Describe the substitution effect on demand
  5. Graph/plot demand curves
  6. Distinguish between movements along a demand curve and shifts of the curve
  7. Predict the effect of a change in price on quantity demanded
  8. Identify when goods are complements
  9. Predict the effect of a change in the price of a complement on demand for a good
  10. Identify when goods are substitutes
  11. Predict the effect of a change in the price of a substitute on demand for a good
  12. Predict the effect of a change in income on demand for a good
  13. Identify factors other than substitutes, complements, and income that can shift demand (# of consumers, seasonal, consumer preference, quality/reputation, etc)
  14. Define the law of supply
  15. Graph/plot supply curves
  16. Distinguish between individual supply vs. market supply
  17. Distinguish between movements along a supply curve and shifts of the curve
  18. Predict the effect of a change in price on quantity supplied
  19. Predict the effect of a change in input prices on supply for a good
  20. Predict the effect of a change in production technology on supply for a good
  21. Predict the effect of a change in taxes on supply for a good
  22. Identify factors other than input prices, production technology, and taxes that can shift supply (# of firms, regulation, production substitutes, etc)
  23. Identify the concept of the invisible hand
  24. Identify the market-clearing price
  25. Graphically solve for equilibrium price and quantity
  26. Mathematically solve for equilibrium price and quantity
  27. Explain when shortages occur
  28. Explain when surpluses occur
  29. Predict the effects of a binding price floor on equilibrium
  30. Predict the effects of a binding price ceiling on equilibrium
  31. Predict the effects of a change in the price of a complement on equilibrium
  32. Predict the effects of a change in the price of a substitute on equilibrium
  33. Predict the effects of a change in income on equilibrium
  34. Predict the effects of changes in other factors that can shift demand (# of consumers, seasonal, consumer preference, quality/reputation, etc) on equilibrium
  35. Predict the effects of a change in input prices on equilibrium
  36. Predict the effects of a change in production technology on equilibrium
  37. Predict the effects of a change in taxes on equilibrium
  38. Predict the effects of changes in other factors that can shift supply (# of firms, regulation, production substitutes, etc) on equilibrium

Profit:

  1. Distinguish between consumer and producer surplus
  2. Calculate consumer surplus
  3. Calculate producer surplus
  4. Recognize importance of using marginal values in decision making
  5. Define the concept of zero economic profit
  6. Identify profit-maximizing output for a competitive firm (P=MC)
  7. Discuss surplus/efficiency in competitive markets
  8. Identify whether a competitive firm should shut down or continue producing in the short run
  9. Identify whether a competitive firm should exit the market or continue producing in the long run (tie to economic profits)
  10. Identify profit-maximizing price for a firm with a monopoly (MR=MC)
  11. Discuss surplus/efficiency in a monopoly market
  12. Calculate marginal revenue for a firm with a monopoly

Elasticity:

  1. Define elasticity
  2. Calculate and interpret price elasticity of demand
  3. Identify elasticity at multiple points along a linear demand curve
  4. Categorize elasticity as inelastic/unit elastic/elastic
  5. Predict the effect of a change in price on total revenue when demand is unit elastic
  6. Predict the effect of a change in price on total revenue when demand is inelastic

Costs and Returns:

  1. Distinguish between fixed and variable costs
  2. Identify sunk costs
  3. Identify the difference between the short run and the long run
  4. Given a cost schedule, calculate total cost
  5. Given a cost schedule, calculate marginal cost
  6. Given a cost schedule, calculate average cost
  7. Given a cost schedule, calculate average variable cost
  8. Given a total cost function, calculate average cost
  9. Given a total cost function, calculate average variable cost
  10. Graph/plot cost curves
  11. Define the law of diminishing marginal returns
  12. Define increasing returns to scale
  13. Define decreasing returns to scale
  14. Define constant returns to scale

Risk and Return:

  1. Calculate rate of return (1 period)
  2. Define average rate of return
  3. Describe how risk determines required return
  4. Distinguish between expected and realized return
  5. Define opportunity cost of capital
  6. Describe arbitrage
  7. Define market efficiency
  8. Define Law of One Price
  9. Define liquidity
  10. Define financial intermediation
  11. Define a bond
  12. Zero coupon vs. level coupon bonds
  13. Calculate the value of a bond
  14. Explain the risk-free rate
  15. Explain the effect of market interest rates on the value of a bond
  16. Distinguish between government and corporate bonds
  17. Define stock
  18. Dividends vs. capital appreciation
  19. Common vs. preferred shares
  20. Public vs. private corporations
  21. Define mutual funds
  22. Explain the diversification effect
  23. Systematic vs. diversifiable risk
  24. Compare long-term risk for stocks vs. bonds
  25. Relationship between risk and return for a stock

Time Value:

  1. Calculate compounded interest
  2. Determine required principal from interest and future value
  3. Convert future value to present value
  4. Compare daily and yearly compounding
  5. Calculate the net present value of a cash flow
  6. Calculate the internal rate of return of a cash flow
  7. Evaluate a project based on net present value or internal rate of return
  8. Define perpetuity
  9. Calculate the present value of a perpetuity
  10. Calculate the present value of a growing perpetuity
  11. Calculate the rate of return of a perpetuity
  12. Define annuity
  13. Calculate the present value of an annuity