Econ 101 -umich Exam 1 Study Guide
Questions with Actual Detailed
Answers 2026.
Positive Economics - Answer What is
Normative Economics - Answer What ought to be
4 Keys of Good Decision-Making - Answer 1) Cost-benefit
2) Opportunity cost
3) Marginal principle
4) Connectedness principle
Cost-benefit - Answer evaluate full set of cost and benefits, then pursue benefit that is at
least as large as the cost
Consumer Surplus - Answer difference between willingness to pay and the price
Producer Surplus - Answer difference between price and producer's cost
Economic Surplus - Answer consumer + producer
Opportunity Cost - Answer true cost is the cost of the next most valuable thing you have to
give up to do it
Sunk Cost - Answer costs you have already incurred that cannot be reversed
Marginal Principle - Answer how many? or one more?
Marginal Benefit - Answer extra benefit from one more
Marginal Cost - Answer extra cost from one more
Equi-Marginal Rule - Answer if something is worth doing, keep doing it until benefit = cost
, Connected Principle - Answer everything is connected and the decisions you make can affect
other decisions, other people, markets, and time
How to graph - Answer 1) Price on vertical
2) Quantity on horizontal
3) Units on both axes
4) Quantity refers to a time period
5) Label Curve
6) Connect with straight lines
Law of Demand - Answer The quantity demanded is higher when prices are lower.
Rational Rule for Buyers - Answer buy more of an item if its marginal benefit is greater than
(or equal to) the price
Bang-for-your-buck - Answer marginal benefit / price
Rational tradeoff Rule - Answer keep buying as long as bang-for-your-buck for one is better
than bang-for-your-buck of the other
Normal Good - Answer higher income more you buy
Inferior Good - Answer higher income less you buy
Market Demand - Answer the total quantity demanded by the market at each price
Intensive Margin (demand) - Answer cheaper, more each customer buys
Extensive Margin (demand) - Answer cheaper, more customers you get
6 Shifts in Demand - Answer 1) Income
2) Taste
3) Price of other good
4) Expectations
5) Network and Congestion Effects
6) Number and type of buyers
Questions with Actual Detailed
Answers 2026.
Positive Economics - Answer What is
Normative Economics - Answer What ought to be
4 Keys of Good Decision-Making - Answer 1) Cost-benefit
2) Opportunity cost
3) Marginal principle
4) Connectedness principle
Cost-benefit - Answer evaluate full set of cost and benefits, then pursue benefit that is at
least as large as the cost
Consumer Surplus - Answer difference between willingness to pay and the price
Producer Surplus - Answer difference between price and producer's cost
Economic Surplus - Answer consumer + producer
Opportunity Cost - Answer true cost is the cost of the next most valuable thing you have to
give up to do it
Sunk Cost - Answer costs you have already incurred that cannot be reversed
Marginal Principle - Answer how many? or one more?
Marginal Benefit - Answer extra benefit from one more
Marginal Cost - Answer extra cost from one more
Equi-Marginal Rule - Answer if something is worth doing, keep doing it until benefit = cost
, Connected Principle - Answer everything is connected and the decisions you make can affect
other decisions, other people, markets, and time
How to graph - Answer 1) Price on vertical
2) Quantity on horizontal
3) Units on both axes
4) Quantity refers to a time period
5) Label Curve
6) Connect with straight lines
Law of Demand - Answer The quantity demanded is higher when prices are lower.
Rational Rule for Buyers - Answer buy more of an item if its marginal benefit is greater than
(or equal to) the price
Bang-for-your-buck - Answer marginal benefit / price
Rational tradeoff Rule - Answer keep buying as long as bang-for-your-buck for one is better
than bang-for-your-buck of the other
Normal Good - Answer higher income more you buy
Inferior Good - Answer higher income less you buy
Market Demand - Answer the total quantity demanded by the market at each price
Intensive Margin (demand) - Answer cheaper, more each customer buys
Extensive Margin (demand) - Answer cheaper, more customers you get
6 Shifts in Demand - Answer 1) Income
2) Taste
3) Price of other good
4) Expectations
5) Network and Congestion Effects
6) Number and type of buyers
