ECON 251 EXAM 2 STUDY GUIDE
2026/2027 COMPLETE QUESTIONS WITH
VERIFIED CORRECT ANSWERS ||
100% GUARANTEED PASS
<NEWEST VERSION>
1. Budget Lines - ANSWER ✔ Line describing the limits to consumtion
possibilities
2. Budget line equation - ANSWER ✔ Income= (price of good x)(quantity of
good x) + (price of good y)(quantity of good y)
3. Utility - ANSWER ✔ Unit of happiness
4. Marginal utility - ANSWER ✔ Additional utility of one more unit
5. Marginal utility equation - ANSWER ✔ (Change in utility)/(change in
quantity)
6. Consumer equilibrium - ANSWER ✔ Maximizes utility
7. Consumer equilibrium equation - ANSWER ✔ (Mu of x)/(P of x= (Mu of
y)/(P of y) (big chart w q, u, mu, etc)
,8. Which is more valuable of water or diamonds? - ANSWER ✔ Total utility
of water is greater than total utility of diamonds BUT marginal utility of
water is greater than marginal utility of diamonds
9. Indifference curve - ANSWER ✔ Curve of a combination of goods amount
which a consumer is indifferent (tangent to budget line)
10.Marginal Rate of Substitution - ANSWER ✔ Rate at which a consumer is
willing to give up good x for an additional unity of y (|slope|)
11.Marginal Rate of Substitution equation - ANSWER ✔ Relative price of a
good at the best alt point
12.Substitution effect - ANSWER ✔ Focuses on the change in slope from
changes in relative prices
13.P<ATC - ANSWER ✔ The firm incurs an economic loss
14.P=ATC - ANSWER ✔ The firm makes a normal profit and zero economic
profit
15.P>ATC - ANSWER ✔ The firm makes an economic profic
16.Short-run Market Supply Curve - ANSWER ✔ Shows the quantity supplied
by all the firms in the market at each price when each firm's plant and
number of firms remain the same
,17.Shutdown Point - ANSWER ✔ The price and quantity at which the firm is
indifferent between producing and shutting down. P=minimum AVC
18.P<AVC - ANSWER ✔ The firm should shutdown
19.P>AVC - ANSWER ✔ The firm should continue production
20.Marginal Revenue (MR) - ANSWER ✔ MR=(deltaTR)/(deltaquantity)
21.Total Revenue (TR) - ANSWER ✔ TR=PxQ
22.Minimum Efficient Scale - ANSWER ✔ The smallest output at which the
long-run average cost reaches its lowest level
23.what happens when heteroskedasticity present - ANSWER ✔ bias in
var(β(hat)j) formula, SEs no longer valid: need robust SEs
24.measurement error - ANSWER ✔ observed values are diff from true values,
variables that data gets collected on differ from variables that influence
decisions
25.measurement error in dependent (y) variable - ANSWER ✔ if error has 0
variance and isn't correlated w x variables, zero conditional mean holds and
coefficients are unbiased/consistent
26.presents of measurement error in y variable causes - ANSWER ✔ increase
in variance of residuals and OLS estimates
, 27.measurement error in explanatory (x) variable - ANSWER ✔ if satisfies
error-in-vars, regression coefficient attenuated towards 0 and OLS estimator
inconsistent ; if doesn't meet error-in-vars, coefficient biased in unknown
direction
28.An implication of the return-to-entrepreneurship curve is that ________. 46)
A) all entrepreneurs in an economy with extractive institutions have exactly
the same return B) all entrepreneurs in an economy with inclusive
institutions have exactly the same return C) for a relatively lower return,
there will be fewer entrepreneurs with at least that return D) for a relatively
lower return, there will be more entrepreneurs with at least that return -
ANSWER ✔ D. for a relatively lower return, there will be more
entrepreneurs with at least that return
29.The ________ hypothesis claims that differences in natural environment,
such as climate and
ecology, are ultimately responsible for the major differences in prosperity
observed around the
world. 47) A) location B) climate C) ecology D) geography - ANSWER ✔
D. geography
30.Which of the following statements is true of Europeans during the period of
colonization? 48) A) Europeans set up extractive economic institutions in all
areas. B) Europeans set up inclusive economic institutions in all areas. C)
Europeans set up relatively extractive economic institutions in areas that had
higher
population densities. D)
Europeans set up relatively inclusive economic institutions in areas that had
higher
population densities. - ANSWER ✔ C. Europeans set up relatively extractive
economic institutions in areas that had higher
population densities.
2026/2027 COMPLETE QUESTIONS WITH
VERIFIED CORRECT ANSWERS ||
100% GUARANTEED PASS
<NEWEST VERSION>
1. Budget Lines - ANSWER ✔ Line describing the limits to consumtion
possibilities
2. Budget line equation - ANSWER ✔ Income= (price of good x)(quantity of
good x) + (price of good y)(quantity of good y)
3. Utility - ANSWER ✔ Unit of happiness
4. Marginal utility - ANSWER ✔ Additional utility of one more unit
5. Marginal utility equation - ANSWER ✔ (Change in utility)/(change in
quantity)
6. Consumer equilibrium - ANSWER ✔ Maximizes utility
7. Consumer equilibrium equation - ANSWER ✔ (Mu of x)/(P of x= (Mu of
y)/(P of y) (big chart w q, u, mu, etc)
,8. Which is more valuable of water or diamonds? - ANSWER ✔ Total utility
of water is greater than total utility of diamonds BUT marginal utility of
water is greater than marginal utility of diamonds
9. Indifference curve - ANSWER ✔ Curve of a combination of goods amount
which a consumer is indifferent (tangent to budget line)
10.Marginal Rate of Substitution - ANSWER ✔ Rate at which a consumer is
willing to give up good x for an additional unity of y (|slope|)
11.Marginal Rate of Substitution equation - ANSWER ✔ Relative price of a
good at the best alt point
12.Substitution effect - ANSWER ✔ Focuses on the change in slope from
changes in relative prices
13.P<ATC - ANSWER ✔ The firm incurs an economic loss
14.P=ATC - ANSWER ✔ The firm makes a normal profit and zero economic
profit
15.P>ATC - ANSWER ✔ The firm makes an economic profic
16.Short-run Market Supply Curve - ANSWER ✔ Shows the quantity supplied
by all the firms in the market at each price when each firm's plant and
number of firms remain the same
,17.Shutdown Point - ANSWER ✔ The price and quantity at which the firm is
indifferent between producing and shutting down. P=minimum AVC
18.P<AVC - ANSWER ✔ The firm should shutdown
19.P>AVC - ANSWER ✔ The firm should continue production
20.Marginal Revenue (MR) - ANSWER ✔ MR=(deltaTR)/(deltaquantity)
21.Total Revenue (TR) - ANSWER ✔ TR=PxQ
22.Minimum Efficient Scale - ANSWER ✔ The smallest output at which the
long-run average cost reaches its lowest level
23.what happens when heteroskedasticity present - ANSWER ✔ bias in
var(β(hat)j) formula, SEs no longer valid: need robust SEs
24.measurement error - ANSWER ✔ observed values are diff from true values,
variables that data gets collected on differ from variables that influence
decisions
25.measurement error in dependent (y) variable - ANSWER ✔ if error has 0
variance and isn't correlated w x variables, zero conditional mean holds and
coefficients are unbiased/consistent
26.presents of measurement error in y variable causes - ANSWER ✔ increase
in variance of residuals and OLS estimates
, 27.measurement error in explanatory (x) variable - ANSWER ✔ if satisfies
error-in-vars, regression coefficient attenuated towards 0 and OLS estimator
inconsistent ; if doesn't meet error-in-vars, coefficient biased in unknown
direction
28.An implication of the return-to-entrepreneurship curve is that ________. 46)
A) all entrepreneurs in an economy with extractive institutions have exactly
the same return B) all entrepreneurs in an economy with inclusive
institutions have exactly the same return C) for a relatively lower return,
there will be fewer entrepreneurs with at least that return D) for a relatively
lower return, there will be more entrepreneurs with at least that return -
ANSWER ✔ D. for a relatively lower return, there will be more
entrepreneurs with at least that return
29.The ________ hypothesis claims that differences in natural environment,
such as climate and
ecology, are ultimately responsible for the major differences in prosperity
observed around the
world. 47) A) location B) climate C) ecology D) geography - ANSWER ✔
D. geography
30.Which of the following statements is true of Europeans during the period of
colonization? 48) A) Europeans set up extractive economic institutions in all
areas. B) Europeans set up inclusive economic institutions in all areas. C)
Europeans set up relatively extractive economic institutions in areas that had
higher
population densities. D)
Europeans set up relatively inclusive economic institutions in areas that had
higher
population densities. - ANSWER ✔ C. Europeans set up relatively extractive
economic institutions in areas that had higher
population densities.
