ECON-B 251 Exam 1 Questions And
Answers Rated A+.
Revenue equation - correct answer. Price x Quantity (P*Q).
Rate of change - correct answer. Price/Quantity (P/Q)
- For a linear relationship, this is consistent across the equation
-For a nonlinear equation, this can be extracted as the tangent of a specific point on the
equation.
Economics - correct answer. The study of allocation of scarce resources.
Microeconomics - correct answer. Study of decision making by individuals,
households, or firms (pollution, crime, health care, education).
Macroeconomics - correct answer. Study of the behavior of the economy as a whole
(inflation, taxes, unemployment).
Rationality assumption - correct answer. Assumption that people do not intentionally
make decisions that would leave them worse off.
Bounded rationality - correct answer. People do not always behave rationally, due to:
asymmetric information, lack of time/ability/resources, bias, emotion, uncertainty, risk.
Prospect theory - correct answer. People choose to take on risk when evaluating
potential losses and avoid risks when evaluating potential gains.
Loss aversion - correct answer. The strong tendency to regard losses as considerably
more important than gains.
Self-interest - correct answer. Economists assume that people make decisions in this
way, intended to make the decision-maker better off without considering others.
, Social interest - correct answer. Decisions made in this way are considered to be the
best decision for society as a whole, taking into account efficiency and equity.
Incentivizing social interest - correct answer. Governments may place punishments or
subsidies in order for people to act in social interest as opposed to self-interest.
Economic models - correct answer. Simplifications of reality that help the
understanding of patterns and similarities across different situations, useful abstractions
of reality.
Marginal effect - correct answer. The effect on the dependent variable that results
from changing an independent variable by a small amount.
Ceteris paribus - correct answer. Keeping all other factors constant in a model.
Scarcity principle - correct answer. Not enough resources are available to satisfy all
wants, so all actions have tradeoffs.
Direct costs - correct answer. Costs that are specifically associated with an action.
Opportunity cost - correct answer. Cost of ruling out alternative actions--> the value of
the next best foregone alternative action.
Opportunity cost equation - correct answer. Opportunity cost = Benefits - Costs.
Positive economics - correct answer. Descriptive statements or scientific predictions,
tested by checking against facts.
Normative economics - correct answer. Value judgements about what individuals
should choose, cannot be tested.
Factors of production - correct answer. Land, labor, entrepreneurship, capital
(physical capital + human capital).
Economic surplus in an opportunity cost problem - correct answer. Value of current
choice - Opportunity cost.
Marginal cost-benefit principle - correct answer. Take an action only if the extra
benefits (monetary + non-monetary) are at least as great as the extra costs.
Sunk costs - correct answer. Costs that cannot be recovered by taking any alternative
choice, should not be considered when making decisions.
Sunk cost fallacy - correct answer. Framing effect in which people make decisions
based on what they have previously invested.
Answers Rated A+.
Revenue equation - correct answer. Price x Quantity (P*Q).
Rate of change - correct answer. Price/Quantity (P/Q)
- For a linear relationship, this is consistent across the equation
-For a nonlinear equation, this can be extracted as the tangent of a specific point on the
equation.
Economics - correct answer. The study of allocation of scarce resources.
Microeconomics - correct answer. Study of decision making by individuals,
households, or firms (pollution, crime, health care, education).
Macroeconomics - correct answer. Study of the behavior of the economy as a whole
(inflation, taxes, unemployment).
Rationality assumption - correct answer. Assumption that people do not intentionally
make decisions that would leave them worse off.
Bounded rationality - correct answer. People do not always behave rationally, due to:
asymmetric information, lack of time/ability/resources, bias, emotion, uncertainty, risk.
Prospect theory - correct answer. People choose to take on risk when evaluating
potential losses and avoid risks when evaluating potential gains.
Loss aversion - correct answer. The strong tendency to regard losses as considerably
more important than gains.
Self-interest - correct answer. Economists assume that people make decisions in this
way, intended to make the decision-maker better off without considering others.
, Social interest - correct answer. Decisions made in this way are considered to be the
best decision for society as a whole, taking into account efficiency and equity.
Incentivizing social interest - correct answer. Governments may place punishments or
subsidies in order for people to act in social interest as opposed to self-interest.
Economic models - correct answer. Simplifications of reality that help the
understanding of patterns and similarities across different situations, useful abstractions
of reality.
Marginal effect - correct answer. The effect on the dependent variable that results
from changing an independent variable by a small amount.
Ceteris paribus - correct answer. Keeping all other factors constant in a model.
Scarcity principle - correct answer. Not enough resources are available to satisfy all
wants, so all actions have tradeoffs.
Direct costs - correct answer. Costs that are specifically associated with an action.
Opportunity cost - correct answer. Cost of ruling out alternative actions--> the value of
the next best foregone alternative action.
Opportunity cost equation - correct answer. Opportunity cost = Benefits - Costs.
Positive economics - correct answer. Descriptive statements or scientific predictions,
tested by checking against facts.
Normative economics - correct answer. Value judgements about what individuals
should choose, cannot be tested.
Factors of production - correct answer. Land, labor, entrepreneurship, capital
(physical capital + human capital).
Economic surplus in an opportunity cost problem - correct answer. Value of current
choice - Opportunity cost.
Marginal cost-benefit principle - correct answer. Take an action only if the extra
benefits (monetary + non-monetary) are at least as great as the extra costs.
Sunk costs - correct answer. Costs that cannot be recovered by taking any alternative
choice, should not be considered when making decisions.
Sunk cost fallacy - correct answer. Framing effect in which people make decisions
based on what they have previously invested.
