Econ 202, Exam 1- Mcginness/ Ole Miss Test with Answers Rated A
economics study of choice under scarcity
study of individual decision making by firms and individ-
microeconomics
uals
study of aggregate behavior including unemployment,
macroeconomics inflation, recessions, and other economy wide phenom-
enons
addresses how world is and can be refuted with evidence.
positive economic statement ex: selling alcohol on Sundays in Oxford will increase prof-
its for local restaurants
addresses how the world should be and is based on
values/criteria that the speaker determines. ex: it is better
normative economic statement
for Oxford and ole miss if alcohol remains restricted on
Sundays
thinking on the margins, key for maximizing outcome. ex:
marginalism how many people should I invite to a beach condo for
spring break
forgone best alternative to any activity. decision makers
always consider this and not just explicit costs. ex: going
opportunity cost to the beach for a week and spending $500 has an oppor-
tunity cost of the best alternative use of a week's income
plus $500
profit opportunities are quickly seized upon and therefore
eflcient markets eliminated almost instantaneously. ex: mining bitcoins be-
cause price might get driven up
principle that everything outside of the model is held
ceteris paribus
constant
the loss of potential gain from other alternatives when one
opportunity cost
alternative is chosen
1/7
, Econ 202, Exam 1- Mcginness/ Ole Miss Test with Answers Rated A
a graph that shows the maximum quantities of two ditter-
PPF (Production Possibilities Frontier)
ent goods that an economic entity can produce
points outside the ppf impossible to produce
points on the ppf where all resources are employed and used eflciently
points inside the ppf where resources are idle or used ineflciently
what shifts ppf outward some resources are not perfectly transferable
why would a realistic ppf be bowed out or concave resources are not perfectly substitutes
the opportunity costs of producing a good increases with
law of increasing opportunity cost
more production of that good
absolute advantage ability to produce more with the same or more resources
ability to produce with less opportunity cost; theory is
comparative advantage where everyone can benefit from trade by specializing in
the goods and services where they have this
find opportunity cost!!!! rancher vs. farmer example
when a central authority determines what is produced,
command economy
how it is produced, and who consumes it
when individuals make decisions in decentralized markets
market economy
for their own self-interest
product markets markets for good and services
resource factor markets market for factors of production
maximize satisfaction from consumption, the given price
households
of goods, services, and wages
firms maximize profits and return to investors
product markets households demand and firms supply
resource factor markets households supply and firms demand
demand relationship between quantity demanded and price
2/7
economics study of choice under scarcity
study of individual decision making by firms and individ-
microeconomics
uals
study of aggregate behavior including unemployment,
macroeconomics inflation, recessions, and other economy wide phenom-
enons
addresses how world is and can be refuted with evidence.
positive economic statement ex: selling alcohol on Sundays in Oxford will increase prof-
its for local restaurants
addresses how the world should be and is based on
values/criteria that the speaker determines. ex: it is better
normative economic statement
for Oxford and ole miss if alcohol remains restricted on
Sundays
thinking on the margins, key for maximizing outcome. ex:
marginalism how many people should I invite to a beach condo for
spring break
forgone best alternative to any activity. decision makers
always consider this and not just explicit costs. ex: going
opportunity cost to the beach for a week and spending $500 has an oppor-
tunity cost of the best alternative use of a week's income
plus $500
profit opportunities are quickly seized upon and therefore
eflcient markets eliminated almost instantaneously. ex: mining bitcoins be-
cause price might get driven up
principle that everything outside of the model is held
ceteris paribus
constant
the loss of potential gain from other alternatives when one
opportunity cost
alternative is chosen
1/7
, Econ 202, Exam 1- Mcginness/ Ole Miss Test with Answers Rated A
a graph that shows the maximum quantities of two ditter-
PPF (Production Possibilities Frontier)
ent goods that an economic entity can produce
points outside the ppf impossible to produce
points on the ppf where all resources are employed and used eflciently
points inside the ppf where resources are idle or used ineflciently
what shifts ppf outward some resources are not perfectly transferable
why would a realistic ppf be bowed out or concave resources are not perfectly substitutes
the opportunity costs of producing a good increases with
law of increasing opportunity cost
more production of that good
absolute advantage ability to produce more with the same or more resources
ability to produce with less opportunity cost; theory is
comparative advantage where everyone can benefit from trade by specializing in
the goods and services where they have this
find opportunity cost!!!! rancher vs. farmer example
when a central authority determines what is produced,
command economy
how it is produced, and who consumes it
when individuals make decisions in decentralized markets
market economy
for their own self-interest
product markets markets for good and services
resource factor markets market for factors of production
maximize satisfaction from consumption, the given price
households
of goods, services, and wages
firms maximize profits and return to investors
product markets households demand and firms supply
resource factor markets households supply and firms demand
demand relationship between quantity demanded and price
2/7
