Econ 102 PSU Practise Exam Questions/Answer 2025/2026
Graded A+
Nonexcludable Public Goods - Impossible or costly to exclude those that have not paid
for the good
The Free-Rider Problem - Situation associated with public goods when individuals
presume that others will pay for public goods
Negative Externality (External Cost) - is present when an economic activity imposes a
cost on third parties (Example: pollution)
How are negative externality problems resolved privately with limited govt. involvement -
Bargaining
Positive Externality - activity that provides benefits to third parties (flu shot)
Ways the govt. can correct positive externalities - Govt. financing, subsides, and
regulation
Price Elasticity of Demand - the responsiveness of quantity demanded of a good to
changes in its price
Midpoint Formula - (Q2-Q1)/(Q1+Q2)/2x100/(P2-P1)/(P1+P2)/2x100
Point Price Elasticity of Demand Equation - 1/Slope x P1/Q1
When price elasticity of demand is elastic... - you want to decrease the price
When price elasticity of demand is inelastic... - you want to increase the price
When price elasticity of demand is inelastic.... - you don't touch the price
Perfectly Elastic: - price is unchanged when quantity demanded changes
Elastic: - Price elasticity of demand is greater than 1
Unit Elastic - Price elasticity of demand is equal to 0
Inelastic - Price Elasticity of demand is less than 1
Perfectly Inelastic - Quantity demanded is unchanged when price changes
Income Elasticity of Demand - a measure of the responsiveness of demand to changes
in income holding the good's price constant
When Income Elasticity is positive... - x and y are substitutes
Graded A+
Nonexcludable Public Goods - Impossible or costly to exclude those that have not paid
for the good
The Free-Rider Problem - Situation associated with public goods when individuals
presume that others will pay for public goods
Negative Externality (External Cost) - is present when an economic activity imposes a
cost on third parties (Example: pollution)
How are negative externality problems resolved privately with limited govt. involvement -
Bargaining
Positive Externality - activity that provides benefits to third parties (flu shot)
Ways the govt. can correct positive externalities - Govt. financing, subsides, and
regulation
Price Elasticity of Demand - the responsiveness of quantity demanded of a good to
changes in its price
Midpoint Formula - (Q2-Q1)/(Q1+Q2)/2x100/(P2-P1)/(P1+P2)/2x100
Point Price Elasticity of Demand Equation - 1/Slope x P1/Q1
When price elasticity of demand is elastic... - you want to decrease the price
When price elasticity of demand is inelastic... - you want to increase the price
When price elasticity of demand is inelastic.... - you don't touch the price
Perfectly Elastic: - price is unchanged when quantity demanded changes
Elastic: - Price elasticity of demand is greater than 1
Unit Elastic - Price elasticity of demand is equal to 0
Inelastic - Price Elasticity of demand is less than 1
Perfectly Inelastic - Quantity demanded is unchanged when price changes
Income Elasticity of Demand - a measure of the responsiveness of demand to changes
in income holding the good's price constant
When Income Elasticity is positive... - x and y are substitutes
