ECON 251 Exam 1 Purdue Blanchard Questions And
Complete Answers
economics - ANSWER a social science that studies the choices we make as we cope with
scarcity and the incentives that influence and reconcile our choices
scarcity - ANSWER available resources are limited
4 resources (factors of production) - ANSWER Natural resources (land), labor, capital (not
money! manmade), and entrepreneurship
Rational choices - ANSWER if benefits ≥ costs then Do It
if benefits < costs then Don't Do It
Opportunity cost - ANSWER Cost of the next best alternative use of money, time, or resources
when one choice is made rather than another
Sunk cost - ANSWER a cost that has already been incurred and cannot be changed by any
decision made now or in the future
Marginal benefit - ANSWER additional BENEFIT from ONE more unit
, Marginal cost - ANSWER additional COST from ONE more unit
Absolute advantage - ANSWER produce faster or more in same amount of time
Comparative advantage - ANSWER produce at the lowest cost
Rules of Comparative Advantage - ANSWER 1. if one person has CA in one task, the other
must have CA in the other
2. no one can have CA in every task
Production Possibility Frontier (PPF) - ANSWER graph of the max output that can be
produced (slope = change in Y / change in X)
Characteristics of PPF - ANSWER 1. negative slope
2. magnitude of slope reflects marginal cost of "x"
3. as the slope gets steeper as X increases, MC increases too
Demand - ANSWER maximum quantity a consumer is willing and able to purchase at various
prices
Law of Demand - ANSWER price and quantity demanded are inversely related (increase in
price results in decrease in quantity demanded)
Complete Answers
economics - ANSWER a social science that studies the choices we make as we cope with
scarcity and the incentives that influence and reconcile our choices
scarcity - ANSWER available resources are limited
4 resources (factors of production) - ANSWER Natural resources (land), labor, capital (not
money! manmade), and entrepreneurship
Rational choices - ANSWER if benefits ≥ costs then Do It
if benefits < costs then Don't Do It
Opportunity cost - ANSWER Cost of the next best alternative use of money, time, or resources
when one choice is made rather than another
Sunk cost - ANSWER a cost that has already been incurred and cannot be changed by any
decision made now or in the future
Marginal benefit - ANSWER additional BENEFIT from ONE more unit
, Marginal cost - ANSWER additional COST from ONE more unit
Absolute advantage - ANSWER produce faster or more in same amount of time
Comparative advantage - ANSWER produce at the lowest cost
Rules of Comparative Advantage - ANSWER 1. if one person has CA in one task, the other
must have CA in the other
2. no one can have CA in every task
Production Possibility Frontier (PPF) - ANSWER graph of the max output that can be
produced (slope = change in Y / change in X)
Characteristics of PPF - ANSWER 1. negative slope
2. magnitude of slope reflects marginal cost of "x"
3. as the slope gets steeper as X increases, MC increases too
Demand - ANSWER maximum quantity a consumer is willing and able to purchase at various
prices
Law of Demand - ANSWER price and quantity demanded are inversely related (increase in
price results in decrease in quantity demanded)
