ECON 110 EXAM 1
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77 Q&A
What is the study of economics? It is the study how society managed its scarce resources
What is microeconomics the study of how households and firms make decisions and how they interact in
markets
What is macroeconomics? the study of economy-wide phenomena (including inflation, unemployment)
What is equality (equity)? when prosperity is distributed uniformly among society's members
What is scarcity? the limited nature of societies resources
What is efficiency? when society gets the most from its scare resources
What are tradeoffs and opportunity costs? How do you - The opportunity cost of any item is whatever you must be given up to obtain it
measure opportunity costs? Examples - when you want something but give something up for the thing you want
- measure by comparing how much energy you expend on 2 different things
-EX: going to college >> giving up income could be earning at a job
What is rationality and thinking at the margin? rational people:
- systematically and purposely do to the best they can to achieve their
objectives
- make decisions by evaluating cost and benefits of marginal changes
Marginal changes incremental adjustments to an existing plan
What are incentives? Examples. something that induced a person to act (the prospect of a reward or
punishment)
EX: when gas prices go up, electric car sales go up
Benefits of trade - countries benefit from trade and specialization ( Get a better price abroad
for goods they produce --
Buy other goods more cheaply from abroad than could be produced at home)
-instead of doing everything alone a person can specialize in one thing and
exchange it for other goods
What is a market? a group of buyers and sellers
What is a market economy? allocates resources through the decisions of many households and firms as
they interact in markets
What is the Invisible Hand and how does it maximizes the interaction of sellers and buyers determines price and price guide self-
economic well being? interested household and firms to make decisions that maximize society's
economic well-being
https://quizlet.com/825498057/econ-110-exam-1-flash-cards/ 1/7
, What is a market failure? when the market fails to allocate society's resources efficiently
market power single buyer or seller has a substantial influence on a market price (monopoly)
inflation increases in the general level of prices
EX: happens when government prints too much money
What is a model? a highly simplified representation of a more complicated reality. Economists
use models to study economic issues
Characteristics of the Circular Flow diagram ? -2 types of "actors": households and firms
-2 types of markets: the market for goods and services and the market for
"factors of production"
How does the Circular Flow Diagram work? outer arrows show flow of dollars, inner arrows show flow of inputs and
outputs
Who are its "actors" and what do they do? -factors of production (are the inputs)
-households: own the factors of production (buy and consume goods)
-firms: buy/hire factors of production (sell goods and services)
What are the two markets? 1. markets for goods and services
2. markets for factors of production
Know what flows from each actor to each market. Markets of Goods and Services: the money that they earn is from the
individuals>> they make money that goes to firms
Markets for Factors of Production: Revenue made by goods is used for wages/
rent >> that go to the households income
What are the factors of production and the payments to factors of production: land, labor, capital, entrepreneurship
them? payments to them: money that goes to the market of good and services goes
to the firms that they use to produce
Characteristics of the Production Possibility Frontier - shifting out and inward show growth and charges
(PPF). -shape of the PPF
What does a PPF tell us? - it shows the combination of two goods the economy can possibly produce
given the resources and technology available
How does a PPF work ? -Opportunity costs determine a PPF
-Moving along a PPF involves shifting resources (e.g., labor) from the
production of one good to the other
-the slope: tells you the opp. costs of one good in terms of the other
What are Efficient, Inefficient, and Unobtainable Points -efficient: all resources are fully utilized (on the line)
on the PPF? -inefficient: some resources underutilized, EX: workers unemployed (under the
line)
-unobtainable: not possible (above the line)
https://quizlet.com/825498057/econ-110-exam-1-flash-cards/ 2/7
-exam elaborations with 100% verified answer/solutions- Excel &
Succeed
77 Q&A
What is the study of economics? It is the study how society managed its scarce resources
What is microeconomics the study of how households and firms make decisions and how they interact in
markets
What is macroeconomics? the study of economy-wide phenomena (including inflation, unemployment)
What is equality (equity)? when prosperity is distributed uniformly among society's members
What is scarcity? the limited nature of societies resources
What is efficiency? when society gets the most from its scare resources
What are tradeoffs and opportunity costs? How do you - The opportunity cost of any item is whatever you must be given up to obtain it
measure opportunity costs? Examples - when you want something but give something up for the thing you want
- measure by comparing how much energy you expend on 2 different things
-EX: going to college >> giving up income could be earning at a job
What is rationality and thinking at the margin? rational people:
- systematically and purposely do to the best they can to achieve their
objectives
- make decisions by evaluating cost and benefits of marginal changes
Marginal changes incremental adjustments to an existing plan
What are incentives? Examples. something that induced a person to act (the prospect of a reward or
punishment)
EX: when gas prices go up, electric car sales go up
Benefits of trade - countries benefit from trade and specialization ( Get a better price abroad
for goods they produce --
Buy other goods more cheaply from abroad than could be produced at home)
-instead of doing everything alone a person can specialize in one thing and
exchange it for other goods
What is a market? a group of buyers and sellers
What is a market economy? allocates resources through the decisions of many households and firms as
they interact in markets
What is the Invisible Hand and how does it maximizes the interaction of sellers and buyers determines price and price guide self-
economic well being? interested household and firms to make decisions that maximize society's
economic well-being
https://quizlet.com/825498057/econ-110-exam-1-flash-cards/ 1/7
, What is a market failure? when the market fails to allocate society's resources efficiently
market power single buyer or seller has a substantial influence on a market price (monopoly)
inflation increases in the general level of prices
EX: happens when government prints too much money
What is a model? a highly simplified representation of a more complicated reality. Economists
use models to study economic issues
Characteristics of the Circular Flow diagram ? -2 types of "actors": households and firms
-2 types of markets: the market for goods and services and the market for
"factors of production"
How does the Circular Flow Diagram work? outer arrows show flow of dollars, inner arrows show flow of inputs and
outputs
Who are its "actors" and what do they do? -factors of production (are the inputs)
-households: own the factors of production (buy and consume goods)
-firms: buy/hire factors of production (sell goods and services)
What are the two markets? 1. markets for goods and services
2. markets for factors of production
Know what flows from each actor to each market. Markets of Goods and Services: the money that they earn is from the
individuals>> they make money that goes to firms
Markets for Factors of Production: Revenue made by goods is used for wages/
rent >> that go to the households income
What are the factors of production and the payments to factors of production: land, labor, capital, entrepreneurship
them? payments to them: money that goes to the market of good and services goes
to the firms that they use to produce
Characteristics of the Production Possibility Frontier - shifting out and inward show growth and charges
(PPF). -shape of the PPF
What does a PPF tell us? - it shows the combination of two goods the economy can possibly produce
given the resources and technology available
How does a PPF work ? -Opportunity costs determine a PPF
-Moving along a PPF involves shifting resources (e.g., labor) from the
production of one good to the other
-the slope: tells you the opp. costs of one good in terms of the other
What are Efficient, Inefficient, and Unobtainable Points -efficient: all resources are fully utilized (on the line)
on the PPF? -inefficient: some resources underutilized, EX: workers unemployed (under the
line)
-unobtainable: not possible (above the line)
https://quizlet.com/825498057/econ-110-exam-1-flash-cards/ 2/7
