ECON 1101 Final Exam questions and answers 2026\2027 A+ Grade
Budget Constraint
- correct answer Represents the individual economic problem
2 possible products, 1 outcome
Affordable combinations are "attainable"
Unaffordable combinations are "unattainable"
In order to reach the unattainable: increase income
Trade-offs exist: budget line shows that with limited income, sacrifices (trade-offs) exist
Trade-off is constant therefore opportunity cost is also constant
What economic resources (or factors of production) are scarce?
- correct answer Land, labour, capital, entrepreneurial ability
What is the budget line for society?
- correct answer Possible production curve
Assumptions of the PPC
- correct answer Full employment, fixed resources and technology, 2 goods
Which of the following are straight? Which is curved? (PPC and budget constraint)
- correct answer PPC - curved
Budget constraint - straight
What makes the PPC curve?
- correct answer Increasing opportunity cost - as the production of a good increases the opportunity cost
of producing an additional unit rises therefore NOT constant trade-off because economic resources are
not completely adaptable to alternative uses
,What is optimal production?
- correct answer MC=MB (or supply = demand)
How do you produce economic growth for the PPC?
- correct answer More resources
Improved resource equality
Technological advances
Forgo consumption for capital goods = economic growth
What is the fallacy of composition?
- correct answer the assumption that what is true for 1 individual is necessarily true for a group of
individuals
What is the post hoc fallacy?
- correct answer when one event precedes another, the first event must have caused the second
What is spuricious correlation?
- correct answer two variables move together but are otherwise unrelated
What is the law of demand?
- correct answer as the price of a good falls, the quantity demanded of that good rises
What causes the demand curve to have an inverse relationship?
- correct answer - diminishing marginal utility (increased consumption = decreased marginal utility)
- Income and substitution effects
What is the income effect?
- correct answer change in price of product effectively changes the consumer's income which in turn
changes the quantity demanded of a given product
What is the substitution effect?
- correct answer When the price of one good increases, it decreases the quantity demanded of that
good and thus increases the quantity demanded of another good that is a substitute for the first good
, What causes a shift in the demand?
- correct answer Increase income = increase demand (right shift)
Decrease income = decrease demand (left shift)
How do you find the market demand curve?
- correct answer Sum the individual demand curves
What are the determinants of demand?
- correct answer Change in consumer taste/preferences
Change in number of buyers
Change in income (normal vs. inferior goods)
Changes in prices of related goods (complements or substitutes)
Changes in consumer expectations about future income or prices
What is a normal good?
- correct answer Goods or services whose consumption rises when income increases
What is an inferior good?
- correct answer Goods or services whose consumption falls when income increases
What are substitute goods?
- correct answer Products or services that can be used in place of eachother
What are complement goods?
- correct answer Products or services that are used together
Which of the following have a direct relationship? Which have an inverse relationship? (Demand,
supply)
- correct answer Demand: inverse
Supply: direct
Budget Constraint
- correct answer Represents the individual economic problem
2 possible products, 1 outcome
Affordable combinations are "attainable"
Unaffordable combinations are "unattainable"
In order to reach the unattainable: increase income
Trade-offs exist: budget line shows that with limited income, sacrifices (trade-offs) exist
Trade-off is constant therefore opportunity cost is also constant
What economic resources (or factors of production) are scarce?
- correct answer Land, labour, capital, entrepreneurial ability
What is the budget line for society?
- correct answer Possible production curve
Assumptions of the PPC
- correct answer Full employment, fixed resources and technology, 2 goods
Which of the following are straight? Which is curved? (PPC and budget constraint)
- correct answer PPC - curved
Budget constraint - straight
What makes the PPC curve?
- correct answer Increasing opportunity cost - as the production of a good increases the opportunity cost
of producing an additional unit rises therefore NOT constant trade-off because economic resources are
not completely adaptable to alternative uses
,What is optimal production?
- correct answer MC=MB (or supply = demand)
How do you produce economic growth for the PPC?
- correct answer More resources
Improved resource equality
Technological advances
Forgo consumption for capital goods = economic growth
What is the fallacy of composition?
- correct answer the assumption that what is true for 1 individual is necessarily true for a group of
individuals
What is the post hoc fallacy?
- correct answer when one event precedes another, the first event must have caused the second
What is spuricious correlation?
- correct answer two variables move together but are otherwise unrelated
What is the law of demand?
- correct answer as the price of a good falls, the quantity demanded of that good rises
What causes the demand curve to have an inverse relationship?
- correct answer - diminishing marginal utility (increased consumption = decreased marginal utility)
- Income and substitution effects
What is the income effect?
- correct answer change in price of product effectively changes the consumer's income which in turn
changes the quantity demanded of a given product
What is the substitution effect?
- correct answer When the price of one good increases, it decreases the quantity demanded of that
good and thus increases the quantity demanded of another good that is a substitute for the first good
, What causes a shift in the demand?
- correct answer Increase income = increase demand (right shift)
Decrease income = decrease demand (left shift)
How do you find the market demand curve?
- correct answer Sum the individual demand curves
What are the determinants of demand?
- correct answer Change in consumer taste/preferences
Change in number of buyers
Change in income (normal vs. inferior goods)
Changes in prices of related goods (complements or substitutes)
Changes in consumer expectations about future income or prices
What is a normal good?
- correct answer Goods or services whose consumption rises when income increases
What is an inferior good?
- correct answer Goods or services whose consumption falls when income increases
What are substitute goods?
- correct answer Products or services that can be used in place of eachother
What are complement goods?
- correct answer Products or services that are used together
Which of the following have a direct relationship? Which have an inverse relationship? (Demand,
supply)
- correct answer Demand: inverse
Supply: direct
