UARK ECON 2143 EXAM #1 2025/2026
QUESTIONS AND ANSWERS 100% PASS
People Face Tradeoffs (P1) - ANS To get one thing, we usually have to give up something else
(leisure time vs . work)
The cost of something is what you is what you give up to get it (P2) - ANS opportunity cost is
the second best alternative (OC of going to college vs the money you could have gotten
working)
rational people think at the margin (P3) - ANS marginal changes are small, incremental
changes to an existing plan of action (deciding to produce one more pencil or not)
people will respond to incentives (P4) - ANS incentive is something that causes a person to
act. Because people use cost and benefit analysis, they also respond to incentives (higher taxes
on cigarettes to prevent smoking)
trade can make everyone better off (P5) - ANS trade allows countries to specialize in goods
according to their comparative advantage, and enjoy a greater variety of goods and services
Markets are usually a good way to organize economic activity (P6) - ANS Adam Smith made
the observation that when households and firms interact in markets guided by the invisible
hand, they will produce the most surpluses for the economy
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, Governments can sometimes improve market outcomes (P7) - ANS Market failures occur
when the market fails to allocate resources efficiently. Governments can step in and intervene
in order to promote efficiency and equity
the standard of living depends on a country's production (P8) - ANS The more goods and
services produced in a country, the higher the standard of living. As people consume a larger
quantity of goods and services, their standard of living will increase
Prices rise when the government prints too much money (P9) - ANS When too much money
is floating in the economy, there will be higher demand for goods and services. This will cause
firms to increase their price in the long run causing inflation.
Society faces a short-run trade-off between inflation and unemployment (P10) - ANS In the
short run, when prices increase, suppliers will want to increase their production of goods and
services. In order to achieve this, they need to hire more workers to produce those goods and
services. More hiring means lower unemployment while there is still inflation. However, this is
not the case in the long-run.
Scarcity - ANS the limited nature of society's resources
econmoics - ANS the study of how society manages its scarce resources
Efficiency - ANS Society is getting the maximum benefits from its scarce resources
(size of economic pie)
Equality - ANS Distributing economic prosperity uniformly among the members of society
(how the pie is divided)
Adam Smith's "invisible hand" - ANS Households and firms interacting in markets
Act as if they are guided by an "invisible hand"
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
QUESTIONS AND ANSWERS 100% PASS
People Face Tradeoffs (P1) - ANS To get one thing, we usually have to give up something else
(leisure time vs . work)
The cost of something is what you is what you give up to get it (P2) - ANS opportunity cost is
the second best alternative (OC of going to college vs the money you could have gotten
working)
rational people think at the margin (P3) - ANS marginal changes are small, incremental
changes to an existing plan of action (deciding to produce one more pencil or not)
people will respond to incentives (P4) - ANS incentive is something that causes a person to
act. Because people use cost and benefit analysis, they also respond to incentives (higher taxes
on cigarettes to prevent smoking)
trade can make everyone better off (P5) - ANS trade allows countries to specialize in goods
according to their comparative advantage, and enjoy a greater variety of goods and services
Markets are usually a good way to organize economic activity (P6) - ANS Adam Smith made
the observation that when households and firms interact in markets guided by the invisible
hand, they will produce the most surpluses for the economy
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, Governments can sometimes improve market outcomes (P7) - ANS Market failures occur
when the market fails to allocate resources efficiently. Governments can step in and intervene
in order to promote efficiency and equity
the standard of living depends on a country's production (P8) - ANS The more goods and
services produced in a country, the higher the standard of living. As people consume a larger
quantity of goods and services, their standard of living will increase
Prices rise when the government prints too much money (P9) - ANS When too much money
is floating in the economy, there will be higher demand for goods and services. This will cause
firms to increase their price in the long run causing inflation.
Society faces a short-run trade-off between inflation and unemployment (P10) - ANS In the
short run, when prices increase, suppliers will want to increase their production of goods and
services. In order to achieve this, they need to hire more workers to produce those goods and
services. More hiring means lower unemployment while there is still inflation. However, this is
not the case in the long-run.
Scarcity - ANS the limited nature of society's resources
econmoics - ANS the study of how society manages its scarce resources
Efficiency - ANS Society is getting the maximum benefits from its scarce resources
(size of economic pie)
Equality - ANS Distributing economic prosperity uniformly among the members of society
(how the pie is divided)
Adam Smith's "invisible hand" - ANS Households and firms interacting in markets
Act as if they are guided by an "invisible hand"
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
