## Available Skills for Finance and Economics Foundations

Institutions can select the skills to be included in the studentsâ€™ 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:

- Distinguish between microeconomics and macroeconomics
- Identify the economic units examined by microeconomics (individuals, firms, markets)
- Identify the implications of scarce resources
- Distinguish between normative and positive analysis
- Distinguish between real and nominal values
- Identify differences between accounting costs and economic costs
- Identify the opportunity cost of a decision
- Describe the nature of mutually beneficial exchange
- Define risk neutral
- Define risk averse
- Identify the difference between accounting profits and economic profits

## Supply and Demand:

- Define the law of demand
- Distinguish between firm-specific demand and market demand
- Describe the income effect on demand
- Describe the substitution effect on demand
- Graph/plot demand curves
- Distinguish between movements along a demand curve and shifts of the curve
- Predict the effect of a change in price on quantity demanded
- Identify when goods are complements
- Predict the effect of a change in the price of a complement on demand for a good
- Identify when goods are substitutes
- Predict the effect of a change in the price of a substitute on demand for a good
- Predict the effect of a change in income on demand for a good
- Identify factors other than substitutes, complements, and income that can shift demand (# of consumers, seasonal, consumer preference, quality/reputation, etc)
- Define the law of supply
- Graph/plot supply curves
- Distinguish between individual supply vs. market supply
- Distinguish between movements along a supply curve and shifts of the curve
- Predict the effect of a change in price on quantity supplied
- Predict the effect of a change in input prices on supply for a good
- Predict the effect of a change in production technology on supply for a good
- Predict the effect of a change in taxes on supply for a good
- Identify factors other than input prices, production technology, and taxes that can shift supply (# of firms, regulation, production substitutes, etc)
- Identify the concept of the invisible hand
- Identify the market-clearing price
- Graphically solve for equilibrium price and quantity
- Mathematically solve for equilibrium price and quantity
- Explain when shortages occur
- Explain when surpluses occur
- Predict the effects of a binding price floor on equilibrium
- Predict the effects of a binding price ceiling on equilibrium
- Predict the effects of a change in the price of a complement on equilibrium
- Predict the effects of a change in the price of a substitute on equilibrium
- Predict the effects of a change in income on equilibrium
- Predict the effects of changes in other factors that can shift demand (# of consumers, seasonal, consumer preference, quality/reputation, etc) on equilibrium
- Predict the effects of a change in input prices on equilibrium
- Predict the effects of a change in production technology on equilibrium
- Predict the effects of a change in taxes on equilibrium
- Predict the effects of changes in other factors that can shift supply (# of firms, regulation, production substitutes, etc) on equilibrium

## Profit:

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

## Elasticity:

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

## Costs and Returns:

- Distinguish between fixed and variable costs
- Identify sunk costs
- Identify the difference between the short run and the long run
- Given a cost schedule, calculate total cost
- Given a cost schedule, calculate marginal cost
- Given a cost schedule, calculate average cost
- Given a cost schedule, calculate average variable cost
- Given a total cost function, calculate average cost
- Given a total cost function, calculate average variable cost
- Graph/plot cost curves
- Define the law of diminishing marginal returns
- Define increasing returns to scale
- Define decreasing returns to scale
- Define constant returns to scale

## Risk and Return:

- Calculate rate of return (1 period)
- Define average rate of return
- Describe how risk determines required return
- Distinguish between expected and realized return
- Define opportunity cost of capital
- Describe arbitrage
- Define market efficiency
- Define Law of One Price
- Define liquidity
- Define financial intermediation
- Define a bond
- Zero coupon vs. level coupon bonds
- Calculate the value of a bond
- Explain the risk-free rate
- Explain the effect of market interest rates on the value of a bond
- Distinguish between government and corporate bonds
- Define stock
- Dividends vs. capital appreciation
- Common vs. preferred shares
- Public vs. private corporations
- Define mutual funds
- Explain the diversification effect
- Systematic vs. diversifiable risk
- Compare long-term risk for stocks vs. bonds
- Relationship between risk and return for a stock

## Time Value:

- Calculate compounded interest
- Determine required principal from interest and future value
- Convert future value to present value
- Compare daily and yearly compounding
- Calculate the net present value of a cash flow
- Calculate the internal rate of return of a cash flow
- Evaluate a project based on net present value or internal rate of return
- Define perpetuity
- Calculate the present value of a perpetuity
- Calculate the present value of a growing perpetuity
- Calculate the rate of return of a perpetuity
- Define annuity
- Calculate the present value of an annuity