UNIVERSITY OF MICHIGAN
ECON 101 PRINCIPLES OF ECONOMICS
FINAL EXAMINATION
TOPIC 1: FOUNDATIONS OF ECONOMICS (Questions 1-20)
1. Economics can best be defined as the study of:
• A) how individuals decide to use scarce resources in an
attempt to satisfy unlimited wants
• B) how to make money
• C) how governments regulate markets
• D) how to eliminate scarcity
• E) how to maximize production
Answer: A
Rationale: Economics is fundamentally the study of how
individuals and societies allocate scarce resources to satisfy
unlimited wants.
2. The opportunity cost of an item is:
• A) the price you pay for it
, • B) what you must give up in order to get something
• C) the total cost of production
• D) always monetary
• E) the same for everyone
Answer: B
Rationale: Opportunity cost is the value of the next best
alternative that you give up when making a choice.
3. Which of the following is a normative statement?
• A) The unemployment rate is 5%.
• B) The government should increase spending to reduce
unemployment.
• C) Inflation is currently 2%.
• D) GDP grew by 3% last year.
• E) The budget deficit is $500 billion.
Answer: B
Rationale: Normative statements express opinions about what
"ought to be" and are subjective.
4. Which of the following is a positive statement?
, • A) The government ought to provide free healthcare.
• B) Taxes are too high.
• C) The unemployment rate is 4.5%.
• D) We should reduce pollution.
• E) Minimum wage should be increased.
Answer: C
Rationale: Positive statements are objective and fact-based,
describing "what is". The unemployment rate is a measurable
fact.
5. Scarcity exists because:
• A) human wants exceed the resources available to satisfy
them
• B) some people are poor
• C) governments create shortages
• D) resources are unlimited
• E) people are greedy
Answer: A
Rationale: Scarcity is the fundamental economic problem –
wants are unlimited, but resources are limited.
, 6. The concept of "thinking at the margin" means:
• A) making decisions based on total costs and benefits
• B) comparing the costs and benefits of doing a little bit
more versus a little bit less
• C) always choosing the cheapest option
• D) ignoring opportunity costs
• E) making decisions based on emotions
Answer: B
Rationale: Marginal decision-making involves comparing the
costs and benefits of doing a little bit more of an activity versus
doing a little less.
7. Which of the following is an example of an incentive?
• A) A tax on cigarettes to discourage smoking
• B) A subsidy for solar panels to encourage renewable
energy
• C) A bonus for employees who meet sales targets
• D) All of the above
• E) None of the above
ECON 101 PRINCIPLES OF ECONOMICS
FINAL EXAMINATION
TOPIC 1: FOUNDATIONS OF ECONOMICS (Questions 1-20)
1. Economics can best be defined as the study of:
• A) how individuals decide to use scarce resources in an
attempt to satisfy unlimited wants
• B) how to make money
• C) how governments regulate markets
• D) how to eliminate scarcity
• E) how to maximize production
Answer: A
Rationale: Economics is fundamentally the study of how
individuals and societies allocate scarce resources to satisfy
unlimited wants.
2. The opportunity cost of an item is:
• A) the price you pay for it
, • B) what you must give up in order to get something
• C) the total cost of production
• D) always monetary
• E) the same for everyone
Answer: B
Rationale: Opportunity cost is the value of the next best
alternative that you give up when making a choice.
3. Which of the following is a normative statement?
• A) The unemployment rate is 5%.
• B) The government should increase spending to reduce
unemployment.
• C) Inflation is currently 2%.
• D) GDP grew by 3% last year.
• E) The budget deficit is $500 billion.
Answer: B
Rationale: Normative statements express opinions about what
"ought to be" and are subjective.
4. Which of the following is a positive statement?
, • A) The government ought to provide free healthcare.
• B) Taxes are too high.
• C) The unemployment rate is 4.5%.
• D) We should reduce pollution.
• E) Minimum wage should be increased.
Answer: C
Rationale: Positive statements are objective and fact-based,
describing "what is". The unemployment rate is a measurable
fact.
5. Scarcity exists because:
• A) human wants exceed the resources available to satisfy
them
• B) some people are poor
• C) governments create shortages
• D) resources are unlimited
• E) people are greedy
Answer: A
Rationale: Scarcity is the fundamental economic problem –
wants are unlimited, but resources are limited.
, 6. The concept of "thinking at the margin" means:
• A) making decisions based on total costs and benefits
• B) comparing the costs and benefits of doing a little bit
more versus a little bit less
• C) always choosing the cheapest option
• D) ignoring opportunity costs
• E) making decisions based on emotions
Answer: B
Rationale: Marginal decision-making involves comparing the
costs and benefits of doing a little bit more of an activity versus
doing a little less.
7. Which of the following is an example of an incentive?
• A) A tax on cigarettes to discourage smoking
• B) A subsidy for solar panels to encourage renewable
energy
• C) A bonus for employees who meet sales targets
• D) All of the above
• E) None of the above
