ECO2023 FINAL Exam STUDY GUIDE
Questions and All Correct Answers
2026-2027 Updated.
Scarcity - Answer A situation where unlimited wants exceed limited resources available to
fulfill those wants.
- Scarcity leads to choices.
- Choices result in trade-offs.
Choices and Trade-Offs - Answer You can think about every choice as a tradeoff—an exchange
—giving up one thing to get something else.
Eight Guideposts to Economic Thinking - Answer 1. Trade-offs are a result of scarcity.
- "There is no such thing as a free lunch."
- Opportunity cost: The highest valued alternative that must be given up to engage in an
activity.
2. Individuals choose purposefully.
- Economizing behavior
- Utility
3. Incentives matter!!!
4. Individuals make decisions at the margin.
5. Information is costly.
6. Beware of secondary effects.
- (Unintended Consequences)
7. The value of a good or service is subjective.
8. The test of a theory is its ability to predict.
Positive & Normative Economics - Answer Positive economics is objective and fact based,
while normative economics is subjective and value based.
Pitfalls to Avoid in Economic Thinking - Answer - Violation of the ceteris paribus condition can
lead one to the wrong conclusion.
- Good intentions do not guarantee desirable outcomes.
- Association is not causation.
- Fallacy of Composition:
, What is true for one might not be true for all.
Microeconomics vs. Macroeconomics - Answer Microeconomics:
- Study of how individuals, households, and firms make choices and interact in markets.
Macroeconomics:
- Study of the economy as a whole.
Opportunity Cost - Answer The highest valued alternative that must be given up to engage in
an activity.
Trade Creates Value - Answer In a voluntary exchange, both parties are made better off.
By channeling goods and resources to those who value them most, trade creates value and
increases the wealth created by a society's resources.
Private Property Rights - Answer - Cause owners to bear the opportunity costs of ignoring the
wishes of others.
- Hold owners accountable for their actions.
...Involve:
- The right to exclusive use of property.
- Legal protection against invasion from other individuals.
- The right to transfer, sell, exchange, or mortgage the property.
Incentives Created by Private Property Rights - Answer - Provide incentives for good
stewardship.
- Create incentives for conservation.
Example:
- &Beyond is a company focused on luxury travel and wildlife sustainability. You can lend a hand
in identifying rhinos for a $1,200 reward.
Production Possibilities Curve (PPC) - Answer A curve showing the maximum attainable
combinations of two products that can be produced.
Assumes:
- A fixed set of resources
Questions and All Correct Answers
2026-2027 Updated.
Scarcity - Answer A situation where unlimited wants exceed limited resources available to
fulfill those wants.
- Scarcity leads to choices.
- Choices result in trade-offs.
Choices and Trade-Offs - Answer You can think about every choice as a tradeoff—an exchange
—giving up one thing to get something else.
Eight Guideposts to Economic Thinking - Answer 1. Trade-offs are a result of scarcity.
- "There is no such thing as a free lunch."
- Opportunity cost: The highest valued alternative that must be given up to engage in an
activity.
2. Individuals choose purposefully.
- Economizing behavior
- Utility
3. Incentives matter!!!
4. Individuals make decisions at the margin.
5. Information is costly.
6. Beware of secondary effects.
- (Unintended Consequences)
7. The value of a good or service is subjective.
8. The test of a theory is its ability to predict.
Positive & Normative Economics - Answer Positive economics is objective and fact based,
while normative economics is subjective and value based.
Pitfalls to Avoid in Economic Thinking - Answer - Violation of the ceteris paribus condition can
lead one to the wrong conclusion.
- Good intentions do not guarantee desirable outcomes.
- Association is not causation.
- Fallacy of Composition:
, What is true for one might not be true for all.
Microeconomics vs. Macroeconomics - Answer Microeconomics:
- Study of how individuals, households, and firms make choices and interact in markets.
Macroeconomics:
- Study of the economy as a whole.
Opportunity Cost - Answer The highest valued alternative that must be given up to engage in
an activity.
Trade Creates Value - Answer In a voluntary exchange, both parties are made better off.
By channeling goods and resources to those who value them most, trade creates value and
increases the wealth created by a society's resources.
Private Property Rights - Answer - Cause owners to bear the opportunity costs of ignoring the
wishes of others.
- Hold owners accountable for their actions.
...Involve:
- The right to exclusive use of property.
- Legal protection against invasion from other individuals.
- The right to transfer, sell, exchange, or mortgage the property.
Incentives Created by Private Property Rights - Answer - Provide incentives for good
stewardship.
- Create incentives for conservation.
Example:
- &Beyond is a company focused on luxury travel and wildlife sustainability. You can lend a hand
in identifying rhinos for a $1,200 reward.
Production Possibilities Curve (PPC) - Answer A curve showing the maximum attainable
combinations of two products that can be produced.
Assumes:
- A fixed set of resources
