ECON 213 EXAM 1 QUESTIONS AND
VERIFIED ANSWERS
scarcity - ANSWER-refers to the limited nature of society's resources, given society's unlimited wants and
neeeds
economics - ANSWER-the study of how people allocate their limited resources to satisfy their nearly
unlimited wants
microeconomics - ANSWER-the study of the individual units that make up the economy
macroeconomics - ANSWER-the study of the overall aspects and workings of an economy
Five Foundations of Economics - ANSWER-1. Incentives
2. Trade-offs
3. Opportunity Cost
4. Marginal Thinking
5. Principle that Trade Creates Value
incentives - ANSWER-factors that motivate a person to act or exert effort
opportunity cost - ANSWER-the highest-valued alternative that must be sacrificed in order to get
something else
economic thinking - ANSWER-requires a purposeful evaluation of the available opportunities to make the
best decision possible
marginal thinking - ANSWER-requires decision-makers to evaluate whether the benefit of one more unit
of something is greater than its cost
markets - ANSWER-bring buyers and sellers together to exchange goods and services
trade - ANSWER-the voluntary exchange of goods and services between two or more parties
comparative advantage - ANSWER-refers to the situation where an individual, business, or country can
produce at a lower opportunity cost than a competitor can
positive statement - ANSWER-can be tested and validated; describes "what is"
normative statement - ANSWER-an opinion that cannot be tested or validated; describes "what ought to
be"
ceteris paribus - ANSWER-concept under which economists examine a change in one variable while
holding everything else constant
endogenous factors - ANSWER-the variables that can be controlled for in a model
exogenous factors - ANSWER-the variables that cannot be controlled for in a model
production possibilites frontier (ppf) - ANSWER-model that illustrates the combinations of outputs that a
society can produce if all of its resources are being used efficiently
law of increasing relative cost - ANSWER-states that the opportunity cost of producing a good rises as a
society produces more of it
absolute advantage - ANSWER-refers to the ability of one producer to make more than another producer
with the same quantity of resources
consumer goods - ANSWER-produced for present consumption
capital goods - ANSWER-help produce other valuable goods and services in the future
investment - ANSWER-is the process of using resources to create or buy new capital
variable - ANSWER-quantity that can take on more than one value
market economy - ANSWER-resources are allocated among households and firms with little or no
government interference
competitive market - ANSWER-exists when there are so many buyers and sellers that each has only a
small impact on the market price and output
imperfect market - ANSWER-either the buyer or the seller has an influence on the market price
VERIFIED ANSWERS
scarcity - ANSWER-refers to the limited nature of society's resources, given society's unlimited wants and
neeeds
economics - ANSWER-the study of how people allocate their limited resources to satisfy their nearly
unlimited wants
microeconomics - ANSWER-the study of the individual units that make up the economy
macroeconomics - ANSWER-the study of the overall aspects and workings of an economy
Five Foundations of Economics - ANSWER-1. Incentives
2. Trade-offs
3. Opportunity Cost
4. Marginal Thinking
5. Principle that Trade Creates Value
incentives - ANSWER-factors that motivate a person to act or exert effort
opportunity cost - ANSWER-the highest-valued alternative that must be sacrificed in order to get
something else
economic thinking - ANSWER-requires a purposeful evaluation of the available opportunities to make the
best decision possible
marginal thinking - ANSWER-requires decision-makers to evaluate whether the benefit of one more unit
of something is greater than its cost
markets - ANSWER-bring buyers and sellers together to exchange goods and services
trade - ANSWER-the voluntary exchange of goods and services between two or more parties
comparative advantage - ANSWER-refers to the situation where an individual, business, or country can
produce at a lower opportunity cost than a competitor can
positive statement - ANSWER-can be tested and validated; describes "what is"
normative statement - ANSWER-an opinion that cannot be tested or validated; describes "what ought to
be"
ceteris paribus - ANSWER-concept under which economists examine a change in one variable while
holding everything else constant
endogenous factors - ANSWER-the variables that can be controlled for in a model
exogenous factors - ANSWER-the variables that cannot be controlled for in a model
production possibilites frontier (ppf) - ANSWER-model that illustrates the combinations of outputs that a
society can produce if all of its resources are being used efficiently
law of increasing relative cost - ANSWER-states that the opportunity cost of producing a good rises as a
society produces more of it
absolute advantage - ANSWER-refers to the ability of one producer to make more than another producer
with the same quantity of resources
consumer goods - ANSWER-produced for present consumption
capital goods - ANSWER-help produce other valuable goods and services in the future
investment - ANSWER-is the process of using resources to create or buy new capital
variable - ANSWER-quantity that can take on more than one value
market economy - ANSWER-resources are allocated among households and firms with little or no
government interference
competitive market - ANSWER-exists when there are so many buyers and sellers that each has only a
small impact on the market price and output
imperfect market - ANSWER-either the buyer or the seller has an influence on the market price
