ECON 101 Exam 1 (UMICH - Wolfers)
Test Questions and Actual Answers
2026 Updated.
what affects your decision via the interdependence principle? (4) - Answer your other
decisions, (you have limited resources, other constraints) decisions made by others within the
market, decisions made by others in other markets, expectations over time
What drives all economic forces? - Answer individual decisions
Name the four core principles of economics - Answer cost benefit, opportunity cost,
marginal, interdependence
Buy when costs (<,>,=) benefits - Answer <
How would you compare decisions that have nothing in common? - Answer willingness to
pay
economic surplus - Answer benefits - costs from a decision, measures how much the
decision improved your well-being
framing effect - Answer differences in the way decisions are described can lead people to
make different (illogical) decisions
opportunity cost - Answer the true cost of something is the next best alternative you must
give up to get it (included in costs when calculating costs vs benefits)
scarcity - Answer resources are limited, so any use of them comes at an opportunity cost
steps to evaluating opportunity cost - Answer what happens if you pick your choice? what
happens if you pick the next best alternative?
sunk costs - Answer time/effort/etc. put into the project which cannot be reversed
(IGNORED in costs vs benefits and exists regardless of which choice is made)
possibility production frontier - Answer shows different outputs attainable with a set of
scarce resources, describes the most you can produce given the circumstances (more of A
means less of B, etc.)
, how to shift out the PPF (shift right) - Answer new production techniques
marginal principle - Answer decisions about quantities are best made incrementally (break
down into smaller questions to ask "one more?" instead of "how many?")
you should apply the marginal principle and ask "one more?" until: - Answer marginal
benefits >= marginal costs (when your economic surplus is maximized)
interdependence principle - Answer the best choice depends on other choices and outside
factors
someone else's shoes technique - Answer think about others' objectives and constraints to
predict their decisions
total marketwide demand - Answer sum of individual demand choices made by buyers
individual demand curve - Answer graph plotting the quantity of an item someone intends to
buy at various prices (P vs Qd) (summarizes BUYING PLANS and how they vary with price)
Price is graphed on the ___ axis, and Quantity is on the ___ axis - Answer y, x
the demand curve is always ___ - sloping - Answer downward (as P increases, Q decreases)
Demand and supply curves are graphed holding ___ ___ ___. This is an example of the ___
principle because the curve is applicable only under the conditions which it was created. -
Answer other things constant, (ONLY price changes along the curve) interdependence
law of demand - Answer individual demand curves are downward sloping; as price increases,
quantity decreases
rational rule for buyers - Answer buy more if the marginal benefit >= the price
how many? --> (___ principle) one more? --> (___ principle) marginal benefit >= price? --> (___
principle) marginal benefit of this decision vs that of next best alternative? --> (___ rule) buy? -
Answer marginal, cost benefit, opportunity cost, rational
the demand curve is the same as the ___ curve - Answer marginal benefits
Test Questions and Actual Answers
2026 Updated.
what affects your decision via the interdependence principle? (4) - Answer your other
decisions, (you have limited resources, other constraints) decisions made by others within the
market, decisions made by others in other markets, expectations over time
What drives all economic forces? - Answer individual decisions
Name the four core principles of economics - Answer cost benefit, opportunity cost,
marginal, interdependence
Buy when costs (<,>,=) benefits - Answer <
How would you compare decisions that have nothing in common? - Answer willingness to
pay
economic surplus - Answer benefits - costs from a decision, measures how much the
decision improved your well-being
framing effect - Answer differences in the way decisions are described can lead people to
make different (illogical) decisions
opportunity cost - Answer the true cost of something is the next best alternative you must
give up to get it (included in costs when calculating costs vs benefits)
scarcity - Answer resources are limited, so any use of them comes at an opportunity cost
steps to evaluating opportunity cost - Answer what happens if you pick your choice? what
happens if you pick the next best alternative?
sunk costs - Answer time/effort/etc. put into the project which cannot be reversed
(IGNORED in costs vs benefits and exists regardless of which choice is made)
possibility production frontier - Answer shows different outputs attainable with a set of
scarce resources, describes the most you can produce given the circumstances (more of A
means less of B, etc.)
, how to shift out the PPF (shift right) - Answer new production techniques
marginal principle - Answer decisions about quantities are best made incrementally (break
down into smaller questions to ask "one more?" instead of "how many?")
you should apply the marginal principle and ask "one more?" until: - Answer marginal
benefits >= marginal costs (when your economic surplus is maximized)
interdependence principle - Answer the best choice depends on other choices and outside
factors
someone else's shoes technique - Answer think about others' objectives and constraints to
predict their decisions
total marketwide demand - Answer sum of individual demand choices made by buyers
individual demand curve - Answer graph plotting the quantity of an item someone intends to
buy at various prices (P vs Qd) (summarizes BUYING PLANS and how they vary with price)
Price is graphed on the ___ axis, and Quantity is on the ___ axis - Answer y, x
the demand curve is always ___ - sloping - Answer downward (as P increases, Q decreases)
Demand and supply curves are graphed holding ___ ___ ___. This is an example of the ___
principle because the curve is applicable only under the conditions which it was created. -
Answer other things constant, (ONLY price changes along the curve) interdependence
law of demand - Answer individual demand curves are downward sloping; as price increases,
quantity decreases
rational rule for buyers - Answer buy more if the marginal benefit >= the price
how many? --> (___ principle) one more? --> (___ principle) marginal benefit >= price? --> (___
principle) marginal benefit of this decision vs that of next best alternative? --> (___ rule) buy? -
Answer marginal, cost benefit, opportunity cost, rational
the demand curve is the same as the ___ curve - Answer marginal benefits
