ECON 102 EXAM 1 2024/2025 WITH
ACCURATE ANSWERS
, ECON 102 EXAM 1 2024/2025 WITH
ACCURATE ANSWERS
Social Costs/Benefits - CORRECT ANSWERSFull costs/benefits borne by society when a resource is used
(internal + external costs/benefits)
Externality - CORRECT ANSWERSA situation in which a private cost/benefit diverges from a social
cost/benefit. A situation in which the costs/benefits of an action are not fully borne/gained by the two
parties engaged in a scarce-resource-using activity. (positive - created by vaccinations and education,
negative - created by pollution and smoking)
Third Parties - CORRECT ANSWERSPeople not directly involved in the activity
Correcting externalities - CORRECT ANSWERSAn externality arises when a private cost/benefit diverges
from a social cost/benefit. The remedy is to change the signal for decision making (make people do
less/more of an activity by increasing/decreasing the costs, decreasing/increasing benefits, or making
requirements)
Economic Analysis - CORRECT ANSWERSPeople making decisions economic wat of thinking
Choices: Costs and Benefits - CORRECT ANSWERSPerforming a certain economic action will increase our
well-being if the benefits are greater than the costs (choices are the result of scarcity)
Self Interest - CORRECT ANSWERSThe pursuit of one's own goals (does not always mean increasing one's
wealth; could also include prestige, friendship, love, and feeling good)
Rationality Assumption - CORRECT ANSWERSThe assumption that people do not intentionally make
decisions that leave them worse off
Incentive - CORRECT ANSWERSA reward or punishment for engaging in an activity (positive - money,
candy, extra credit, company awards, negative - tax, spanking, jail, overdraft fees, fines)
ACCURATE ANSWERS
, ECON 102 EXAM 1 2024/2025 WITH
ACCURATE ANSWERS
Social Costs/Benefits - CORRECT ANSWERSFull costs/benefits borne by society when a resource is used
(internal + external costs/benefits)
Externality - CORRECT ANSWERSA situation in which a private cost/benefit diverges from a social
cost/benefit. A situation in which the costs/benefits of an action are not fully borne/gained by the two
parties engaged in a scarce-resource-using activity. (positive - created by vaccinations and education,
negative - created by pollution and smoking)
Third Parties - CORRECT ANSWERSPeople not directly involved in the activity
Correcting externalities - CORRECT ANSWERSAn externality arises when a private cost/benefit diverges
from a social cost/benefit. The remedy is to change the signal for decision making (make people do
less/more of an activity by increasing/decreasing the costs, decreasing/increasing benefits, or making
requirements)
Economic Analysis - CORRECT ANSWERSPeople making decisions economic wat of thinking
Choices: Costs and Benefits - CORRECT ANSWERSPerforming a certain economic action will increase our
well-being if the benefits are greater than the costs (choices are the result of scarcity)
Self Interest - CORRECT ANSWERSThe pursuit of one's own goals (does not always mean increasing one's
wealth; could also include prestige, friendship, love, and feeling good)
Rationality Assumption - CORRECT ANSWERSThe assumption that people do not intentionally make
decisions that leave them worse off
Incentive - CORRECT ANSWERSA reward or punishment for engaging in an activity (positive - money,
candy, extra credit, company awards, negative - tax, spanking, jail, overdraft fees, fines)
