PRINCIPLES OF MICROECONOMICS FINAL
EXAM PRACTICE REVIEW 2026 TESTED
QUESTIONS
◉ rational. Answer: systematically and purposefully do the best they
can to achieve an objective
◉ incentive. Answer: induces someone to act
◉ marginal. Answer: small, incremental changes
◉ Law of Diminishing Marginal Utility. Answer: law of decreasing
small changes in pleasure
◉ trade-offs. Answer: produce more of one good or service, means
we need to produce less of another
◉ opportunity cost. Answer: highest valued alternative that must be
given up to engage in activity; whatever must be given up to obtain
some item; marginal benefit>marginal cost
◉ centrally planned economy. Answer: government decides how
economic resources will be allocated--communism
,◉ market economy. Answer: decisions of the household and firms
interacting in markets that allocate resources--resources are
allocated among households and firms with little to no government
interference
◉ mixed economy. Answer: when most economic decisions result
from the interaction of buyers and sellers but the government plays
a significant role in the allocation of resources
◉ productive efficiency. Answer: good or service is produced at the
lowest possible cost
◉ allocative efficiency. Answer: production is in in accordance with
consumer preferences
◉ production possibilities frontier. Answer: curve showing the
maximum attainable combinations of two goods that can be
produced with available resources and current technology, positive
tool -- "what is" -- shows trade-off curve between two quantities
◉ ceteris paribus. Answer: to hold all else constant
◉ Law of increasing marginal opportunity cost. Answer: opportunity
cost of production in a good rises as society produces more of it
, ◉ absolute advantage. Answer: ability of one producers to make
more than another producer with the same quantity of resources
◉ comparative advantage. Answer: ability of an individual, a firm, or
country to produce a good or service at a lower opp cost than
competitors
◉ competitive market. Answer: many buyers and sellers
◉ quantity demanded. Answer: amount of a good or service that a
consumer is willing and able to purchase at a given price
◉ law of demand. Answer: given ceteris paribus quantity demanded
falls when prices rise and QD rises when prices fall
◉ substitution effect. Answer: change in QD of good that results
from a change in price, making the good more or less expensive
relative to other goods that are substitutes
◉ income effect. Answer: change in QD of good that results from the
effect of a change in the goods price on consumer's purchasing
power
EXAM PRACTICE REVIEW 2026 TESTED
QUESTIONS
◉ rational. Answer: systematically and purposefully do the best they
can to achieve an objective
◉ incentive. Answer: induces someone to act
◉ marginal. Answer: small, incremental changes
◉ Law of Diminishing Marginal Utility. Answer: law of decreasing
small changes in pleasure
◉ trade-offs. Answer: produce more of one good or service, means
we need to produce less of another
◉ opportunity cost. Answer: highest valued alternative that must be
given up to engage in activity; whatever must be given up to obtain
some item; marginal benefit>marginal cost
◉ centrally planned economy. Answer: government decides how
economic resources will be allocated--communism
,◉ market economy. Answer: decisions of the household and firms
interacting in markets that allocate resources--resources are
allocated among households and firms with little to no government
interference
◉ mixed economy. Answer: when most economic decisions result
from the interaction of buyers and sellers but the government plays
a significant role in the allocation of resources
◉ productive efficiency. Answer: good or service is produced at the
lowest possible cost
◉ allocative efficiency. Answer: production is in in accordance with
consumer preferences
◉ production possibilities frontier. Answer: curve showing the
maximum attainable combinations of two goods that can be
produced with available resources and current technology, positive
tool -- "what is" -- shows trade-off curve between two quantities
◉ ceteris paribus. Answer: to hold all else constant
◉ Law of increasing marginal opportunity cost. Answer: opportunity
cost of production in a good rises as society produces more of it
, ◉ absolute advantage. Answer: ability of one producers to make
more than another producer with the same quantity of resources
◉ comparative advantage. Answer: ability of an individual, a firm, or
country to produce a good or service at a lower opp cost than
competitors
◉ competitive market. Answer: many buyers and sellers
◉ quantity demanded. Answer: amount of a good or service that a
consumer is willing and able to purchase at a given price
◉ law of demand. Answer: given ceteris paribus quantity demanded
falls when prices rise and QD rises when prices fall
◉ substitution effect. Answer: change in QD of good that results
from a change in price, making the good more or less expensive
relative to other goods that are substitutes
◉ income effect. Answer: change in QD of good that results from the
effect of a change in the goods price on consumer's purchasing
power
