Econ 203 Exam 1 with
correct questions and
answers
usr
[COMPANY NAME] [Company address]
,1. People face trade-offs Answer: (principle 1 of economics) To get one thing, you have to give
up something else. Making decision requires trading ott one goal against another.
2. efficiency Answer: the property of a resource allocation of maximizing the total surplus received
by all members of society. Refers to the size of the economic pie
3. equality Answer: the property of distributing economic prosperity uniformly among the members
of society. Refers to how the pie is divided into individual slices
4. The cost of something is what you give up to get it Answer: (principle 2
of economics) decision makers have to consider both the obvious and implicit costs of their
actions as well as the benefits of alternatives
5. Rational people think at the margin Answer: (principle 3 of economics) rational
people systematically and purposefully do the best they can to achieve their objectives. These
decision makers weigh marginal changes and will only take a certain action if the marginal benefit
exceeds the marginal cost
6. People respond to incentives Answer: (principle 4 of economics) an incentive is
something that induces a
person to act, such as the prospect of a punishment of reward. Because rational people make decisions
by comparing costs and benefits, they respond to incentives. For example, a higher price in a market
provides an incentive for buyers to consume less and an incentive for sellers to produce more.
7. Trade can make everyone better off Answer: (principle 5 of economics) trade allows
each person to
specialize in the activities they do best, and by trading with others people can buy a greater variety
of goods and services at lower cost.
8. Markets are usually a good way to organize economic activity Answer:
(principle 6 of
economics) centrally planned economies are ineflcient due to the impossibility of the government
knowing what everyone needs. The market economy prevails, where firms and households are driven by
prices and self-interest, because of the stabilizing interaction between buyers and sellers, an 'invisible hand'
leads them to desirable market outcomes
9. market economy Answer: an economy that allocates resources through the decentralized
decisions of many firms
and households as they interact in markets for goods and services.
10. Government can sometimes improve market economy Answer:
(principle 7 of economics) the government is necessary within economics to enforce rules
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, (property rights and laws) and maintain institutions that are key to a market economy. In the presence of
externalities or market power, well-designed public policy can enhance economic eflciency, preventing
market failure. In addition, to improve economic equality, the government can intervene with public policies
such as the income tax and the welfare systems aiming to achieve a more equal distribution of
economic well-being, promoting equality.
11. property rights Answer: the ability of an individual to own and exercise control over
scarce resources
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18
correct questions and
answers
usr
[COMPANY NAME] [Company address]
,1. People face trade-offs Answer: (principle 1 of economics) To get one thing, you have to give
up something else. Making decision requires trading ott one goal against another.
2. efficiency Answer: the property of a resource allocation of maximizing the total surplus received
by all members of society. Refers to the size of the economic pie
3. equality Answer: the property of distributing economic prosperity uniformly among the members
of society. Refers to how the pie is divided into individual slices
4. The cost of something is what you give up to get it Answer: (principle 2
of economics) decision makers have to consider both the obvious and implicit costs of their
actions as well as the benefits of alternatives
5. Rational people think at the margin Answer: (principle 3 of economics) rational
people systematically and purposefully do the best they can to achieve their objectives. These
decision makers weigh marginal changes and will only take a certain action if the marginal benefit
exceeds the marginal cost
6. People respond to incentives Answer: (principle 4 of economics) an incentive is
something that induces a
person to act, such as the prospect of a punishment of reward. Because rational people make decisions
by comparing costs and benefits, they respond to incentives. For example, a higher price in a market
provides an incentive for buyers to consume less and an incentive for sellers to produce more.
7. Trade can make everyone better off Answer: (principle 5 of economics) trade allows
each person to
specialize in the activities they do best, and by trading with others people can buy a greater variety
of goods and services at lower cost.
8. Markets are usually a good way to organize economic activity Answer:
(principle 6 of
economics) centrally planned economies are ineflcient due to the impossibility of the government
knowing what everyone needs. The market economy prevails, where firms and households are driven by
prices and self-interest, because of the stabilizing interaction between buyers and sellers, an 'invisible hand'
leads them to desirable market outcomes
9. market economy Answer: an economy that allocates resources through the decentralized
decisions of many firms
and households as they interact in markets for goods and services.
10. Government can sometimes improve market economy Answer:
(principle 7 of economics) the government is necessary within economics to enforce rules
2/
18
, (property rights and laws) and maintain institutions that are key to a market economy. In the presence of
externalities or market power, well-designed public policy can enhance economic eflciency, preventing
market failure. In addition, to improve economic equality, the government can intervene with public policies
such as the income tax and the welfare systems aiming to achieve a more equal distribution of
economic well-being, promoting equality.
11. property rights Answer: the ability of an individual to own and exercise control over
scarce resources
3/
18
