McGill Econ 208 || QUESTIONS WITH PASSED
ANSWERS!!!
What is economics? correct answers Economics is the study of the use of scarce resources to
satisfy unlimited human wants.
Resources correct answers Land (natural things, including natural resources), Labor (mental,
physical human effort), Capital (tools, machinery, equiment used to produce things)
Goods correct answers Tangible items, like cars
Services correct answers Intangible items, such as legal advice
Production correct answers the act of making an item
Consumption correct answers the act of using an item
What are the 3 key questions of economics? correct answers WHAT to produce? HOW to
produce? FOR WHOM to produce?
Opportunity Cost correct answers the value of the next best alternative that is forgone when
something is chosen. Example: when going to college, you forgo the potential income from
working.
Planned Economy correct answers The government controls the resources, economic activity
is conducted according to plans by the government. Plans can coexist with markets, but
markets are heavily controlled. Main problems of a planned economy: information and
incentives, or shortages.
Market Economy correct answers mostly private ownership of resources, economic decisions
are decentralized, prices, quantity determined by supply + demand, government CAN
intervene
Invisible Hand correct answers A phrase coined by Adam Smith to describe the process that
turns self-directed gain into social and economic benefits for all
What does the government do in the modern economy? correct answers Correct market
failures, provide public goods, offset effects of externalities (like hurricanes), income
redistribution
Micro vs Macroeconomics correct answers Macro looks at the entire economy, big picture,
how everyone is affected. Micro looks at the individuals in the economy and their roles.
Production Possibilities Frontier/Boundary correct answers Curve that shows the possible
quantities that can be produced
When does a PPF shift: outwards, inwards, towards one side correct answers outwards:
improvements in production of both/all goods. Inwards: reduction in production of both
goods. Towards one side: Improvements in production of THAT good, but not the other.
, Positve vs Normative correct answers Positive: factual. Normative: not factual. Example of
positive: It rained yesterday. Example of normative: you should dress warmly.
What is a theory? correct answers (often simple) abstraction from reality. Consists of models
we build that contain variables and their relationships, assumptions we impose/make, and
predictions we make/conclusions we draw.
Endogenous vs Exogenous variables correct answers Dependent vs Independent variables
How do we test theories? correct answers Confront predictions with evidence. If theory
conflicts with fact, it is either amended or replaced by a better theory. Use the scientific
approach.
Function relations: positively related, negatively related, linearly related correct answers
positive: move in same direction. negative: move in opposite directions. linearly related: the
graph is a straight line. non-linear: not straight line.
slope of a line correct answers delta Y / delta X
diminishing marginal response correct answers as more of something is accumulated, the
change in another variable decreases.
increasing marginal cost correct answers when each additional unit costs more to produce
than the previous one
Demand correct answers Consumer willingness and ability to buy products
Quantity Demanded correct answers the amount of a good that buyers are willing and able to
purchase
Quantity Bought correct answers The actual purchases of a product.
What is the relationship between price and quantity demanded? correct answers Negatively
related: products have substitutes. When the price of a product changes, consumers buy more
of the cheaper goods. Example: if Pepsi now costs $5, people are more likely to buy Coca
Cola.
Demand Schedules and Curves correct answers Demand schedule: table of qty demanded at
specific price. Demand curve graphs these points.
What causes a shift in the demand curve? correct answers Change in variable OTHER THAN
PRICE! Examples: income, prices of other goods, consumer preferences, market demand
right/left shift in demand correct answers Right: increase in demand. Left: decrease in
demand.
Change in demand correct answers a shift of the demand curve, which changes the quantity
demanded at any given price
ANSWERS!!!
What is economics? correct answers Economics is the study of the use of scarce resources to
satisfy unlimited human wants.
Resources correct answers Land (natural things, including natural resources), Labor (mental,
physical human effort), Capital (tools, machinery, equiment used to produce things)
Goods correct answers Tangible items, like cars
Services correct answers Intangible items, such as legal advice
Production correct answers the act of making an item
Consumption correct answers the act of using an item
What are the 3 key questions of economics? correct answers WHAT to produce? HOW to
produce? FOR WHOM to produce?
Opportunity Cost correct answers the value of the next best alternative that is forgone when
something is chosen. Example: when going to college, you forgo the potential income from
working.
Planned Economy correct answers The government controls the resources, economic activity
is conducted according to plans by the government. Plans can coexist with markets, but
markets are heavily controlled. Main problems of a planned economy: information and
incentives, or shortages.
Market Economy correct answers mostly private ownership of resources, economic decisions
are decentralized, prices, quantity determined by supply + demand, government CAN
intervene
Invisible Hand correct answers A phrase coined by Adam Smith to describe the process that
turns self-directed gain into social and economic benefits for all
What does the government do in the modern economy? correct answers Correct market
failures, provide public goods, offset effects of externalities (like hurricanes), income
redistribution
Micro vs Macroeconomics correct answers Macro looks at the entire economy, big picture,
how everyone is affected. Micro looks at the individuals in the economy and their roles.
Production Possibilities Frontier/Boundary correct answers Curve that shows the possible
quantities that can be produced
When does a PPF shift: outwards, inwards, towards one side correct answers outwards:
improvements in production of both/all goods. Inwards: reduction in production of both
goods. Towards one side: Improvements in production of THAT good, but not the other.
, Positve vs Normative correct answers Positive: factual. Normative: not factual. Example of
positive: It rained yesterday. Example of normative: you should dress warmly.
What is a theory? correct answers (often simple) abstraction from reality. Consists of models
we build that contain variables and their relationships, assumptions we impose/make, and
predictions we make/conclusions we draw.
Endogenous vs Exogenous variables correct answers Dependent vs Independent variables
How do we test theories? correct answers Confront predictions with evidence. If theory
conflicts with fact, it is either amended or replaced by a better theory. Use the scientific
approach.
Function relations: positively related, negatively related, linearly related correct answers
positive: move in same direction. negative: move in opposite directions. linearly related: the
graph is a straight line. non-linear: not straight line.
slope of a line correct answers delta Y / delta X
diminishing marginal response correct answers as more of something is accumulated, the
change in another variable decreases.
increasing marginal cost correct answers when each additional unit costs more to produce
than the previous one
Demand correct answers Consumer willingness and ability to buy products
Quantity Demanded correct answers the amount of a good that buyers are willing and able to
purchase
Quantity Bought correct answers The actual purchases of a product.
What is the relationship between price and quantity demanded? correct answers Negatively
related: products have substitutes. When the price of a product changes, consumers buy more
of the cheaper goods. Example: if Pepsi now costs $5, people are more likely to buy Coca
Cola.
Demand Schedules and Curves correct answers Demand schedule: table of qty demanded at
specific price. Demand curve graphs these points.
What causes a shift in the demand curve? correct answers Change in variable OTHER THAN
PRICE! Examples: income, prices of other goods, consumer preferences, market demand
right/left shift in demand correct answers Right: increase in demand. Left: decrease in
demand.
Change in demand correct answers a shift of the demand curve, which changes the quantity
demanded at any given price
