ECON 110 PRACTICE EXAM
QUESTIONS AND DETAILED
SOLUTIONS 2026
▶ Externalities. Answer: An imposition of a good thing (positive externality)
or a bad thing (negative externality) on an uninvolved 3rd party.
-weather, animals on a wedding day
▶ What is the goal of economics?. Answer: To make people better-off
through the use of choices.
▶ 3 basic economic questions. Answer: What to Produce?
For Whom to Produce?
How to Produce?
▶ Economic Resources. Answer: Land
Labor
Capital
- Financial
-Technology
-Sometimes Entrepreneurship
▶ Tools of Economics. Answer: Factual Tools- Stats, history, and how
institutions operate.
Theoretical Tools- Economic concepts and ideas. How are choices made?
What are the implications for those choices and for quality of life? Are we
making things better or worse?
▶ Scientific method. Answer: Observe an event.
Devise a hypothesis.
Test the hypothesis.
Accept, reject, or revise, the hypothesis.
▶ Scarcity. Answer: The need for the science of economics comes from
scarcity. We only have a limited number of resources to satisfy our
,unlimited wants for goods and services. As a result, we need to economize
on the use of those resources to get the greatest benefit out of them. The
limited resources for production relative to demand for goods and services.
"As long as there is demand, there is scarcity"
Bottom Line...We can't have everything we want! Understanding this allows
one to understand economics better.
▶ So What is the Difference Between Something That is Scarce and
Something That is Rare?. Answer: Does not commonly exist. Something
that is rare is not always scarce but something that is scarce is also rare.
Point is, there has to be a demand for the rare item for it to be scarce.
▶ Human Capital. Answer: Stripped of everything, what you have
left...charisma, good looks, intelligence, etc.
▶ Want vs need. Answer: Want- Something we feel would satisfy our
needs but is not a necessity.
Need- Necessity.
▶ Rationing and allocation. Answer: Rationing Methods
central authority
random
draw/lottery
equality
1st come 1st serve
fixed favoritism
price
▶ Preference. Answer: One's first choice
▶ Alternatives. Answer: Different alternatives from which you can choose.
▶ Choice. Answer: Must be made as to which wants and needs to satisfy.
Most situations involve making choices. People evaluate the costs and
benefits of different alternatives and choose the alternative that seems best
to them.
People's Choices Have Consequences That Lie in the Future
The important costs and benefits in economic decision-making are those
that will appear in the future. The study of economics stresses the
,importance of making decisions about the future because we can influence
only the future; we cannot influence things that happened in the past.
▶ Utility. Answer: A measure of the relative satisfaction from or desirability
of consumption of various goods and services.
How one can measure a certain level of happiness...How do we measure
happiness?...How much others have comparatively to us.
▶ Law of Diminishing Utility. Answer: Over time the usefulness or
satisfaction gained from a product decreases.
▶ Marginal. Answer: How much is too much? How much is not enough?
The fork in the road- Which way to go now?
You can make incremental decisions along the way, it does not have to be
all or nothing.
A measurable point.
▶ Law of Diminishing returns. Answer: At a point, the addition of any extra
resources does not help but may actually hinder one's utility.
A breaking point where no more can be produced while adding additional
units of resources.
▶ Trade off. Answer: Choices involve giving up something to get
something.
All choices have consequences, positive and/or negative.
▶ Opportunity cost. Answer: A resource can only be allocated to one thing
at a time. The opportunity cost of deciding to do one thing is the next best
alternative use of the resource. The next best thing on the list.
▶ Costs. Answer: To be obtained at a certain expenditure.
All choices have costs.
▶ implicit vs explicit costs. Answer: Explicit Costs- Out-of-pocket expenses
Implicit Costs- The value of resources that could be used elsewhere (OC)
or what could have been.
▶ Benefit Cost Analysis. Answer: Is it worth it?
, ▶ Comparative Benefit Cost Analysis. Answer: Even if it's a good deal, is it
the best deal?
▶ Marginal cost benefit analysis. Answer: You have used all your
resources but now get some more. Where should they go so that you get
the greatest additional benefit for every additional resource you use? How
much is too much? How much is not enough?
▶ Sunk costs. Answer: Regardless of how high costs were in the past, the
important question is whether future additional benefits are great than
future additional costs. Past costs are not relevant in the decision.
▶ Economic goals. Answer: Goals in Terms of Time
All goals can be achieved or determined according to long run or short
decision making.
Trade-offs
Incentives
Costs
▶ GDP growth. Answer: Growth in jobs, businesses, factories, markets.
Increasing GDP.
▶ GDP. Answer: The basic measure of a nation's economic output and
income
The value of all final goods and services produced within a country's
national borders in a year
▶ GDP equation. Answer: C+I+G+(x-m)= GDP
C= Consumer Spending
I= Investment
G= Government Spending
(x-m)= Exports - Imports
▶ Parts of the GDP equation meanings. Answer: (C) Consumption: The
amount spent by households on goods and services. Includes durable
(cars, food, clothes, etc) and non-durable (haircuts, dentist appointments,
etc) goods.
Makes up 2/3rds of GDP spending
(I) Investment: Spending by businesses on machinery, factories,
equipment, tools. Spending by households on new homes. STOCKS
QUESTIONS AND DETAILED
SOLUTIONS 2026
▶ Externalities. Answer: An imposition of a good thing (positive externality)
or a bad thing (negative externality) on an uninvolved 3rd party.
-weather, animals on a wedding day
▶ What is the goal of economics?. Answer: To make people better-off
through the use of choices.
▶ 3 basic economic questions. Answer: What to Produce?
For Whom to Produce?
How to Produce?
▶ Economic Resources. Answer: Land
Labor
Capital
- Financial
-Technology
-Sometimes Entrepreneurship
▶ Tools of Economics. Answer: Factual Tools- Stats, history, and how
institutions operate.
Theoretical Tools- Economic concepts and ideas. How are choices made?
What are the implications for those choices and for quality of life? Are we
making things better or worse?
▶ Scientific method. Answer: Observe an event.
Devise a hypothesis.
Test the hypothesis.
Accept, reject, or revise, the hypothesis.
▶ Scarcity. Answer: The need for the science of economics comes from
scarcity. We only have a limited number of resources to satisfy our
,unlimited wants for goods and services. As a result, we need to economize
on the use of those resources to get the greatest benefit out of them. The
limited resources for production relative to demand for goods and services.
"As long as there is demand, there is scarcity"
Bottom Line...We can't have everything we want! Understanding this allows
one to understand economics better.
▶ So What is the Difference Between Something That is Scarce and
Something That is Rare?. Answer: Does not commonly exist. Something
that is rare is not always scarce but something that is scarce is also rare.
Point is, there has to be a demand for the rare item for it to be scarce.
▶ Human Capital. Answer: Stripped of everything, what you have
left...charisma, good looks, intelligence, etc.
▶ Want vs need. Answer: Want- Something we feel would satisfy our
needs but is not a necessity.
Need- Necessity.
▶ Rationing and allocation. Answer: Rationing Methods
central authority
random
draw/lottery
equality
1st come 1st serve
fixed favoritism
price
▶ Preference. Answer: One's first choice
▶ Alternatives. Answer: Different alternatives from which you can choose.
▶ Choice. Answer: Must be made as to which wants and needs to satisfy.
Most situations involve making choices. People evaluate the costs and
benefits of different alternatives and choose the alternative that seems best
to them.
People's Choices Have Consequences That Lie in the Future
The important costs and benefits in economic decision-making are those
that will appear in the future. The study of economics stresses the
,importance of making decisions about the future because we can influence
only the future; we cannot influence things that happened in the past.
▶ Utility. Answer: A measure of the relative satisfaction from or desirability
of consumption of various goods and services.
How one can measure a certain level of happiness...How do we measure
happiness?...How much others have comparatively to us.
▶ Law of Diminishing Utility. Answer: Over time the usefulness or
satisfaction gained from a product decreases.
▶ Marginal. Answer: How much is too much? How much is not enough?
The fork in the road- Which way to go now?
You can make incremental decisions along the way, it does not have to be
all or nothing.
A measurable point.
▶ Law of Diminishing returns. Answer: At a point, the addition of any extra
resources does not help but may actually hinder one's utility.
A breaking point where no more can be produced while adding additional
units of resources.
▶ Trade off. Answer: Choices involve giving up something to get
something.
All choices have consequences, positive and/or negative.
▶ Opportunity cost. Answer: A resource can only be allocated to one thing
at a time. The opportunity cost of deciding to do one thing is the next best
alternative use of the resource. The next best thing on the list.
▶ Costs. Answer: To be obtained at a certain expenditure.
All choices have costs.
▶ implicit vs explicit costs. Answer: Explicit Costs- Out-of-pocket expenses
Implicit Costs- The value of resources that could be used elsewhere (OC)
or what could have been.
▶ Benefit Cost Analysis. Answer: Is it worth it?
, ▶ Comparative Benefit Cost Analysis. Answer: Even if it's a good deal, is it
the best deal?
▶ Marginal cost benefit analysis. Answer: You have used all your
resources but now get some more. Where should they go so that you get
the greatest additional benefit for every additional resource you use? How
much is too much? How much is not enough?
▶ Sunk costs. Answer: Regardless of how high costs were in the past, the
important question is whether future additional benefits are great than
future additional costs. Past costs are not relevant in the decision.
▶ Economic goals. Answer: Goals in Terms of Time
All goals can be achieved or determined according to long run or short
decision making.
Trade-offs
Incentives
Costs
▶ GDP growth. Answer: Growth in jobs, businesses, factories, markets.
Increasing GDP.
▶ GDP. Answer: The basic measure of a nation's economic output and
income
The value of all final goods and services produced within a country's
national borders in a year
▶ GDP equation. Answer: C+I+G+(x-m)= GDP
C= Consumer Spending
I= Investment
G= Government Spending
(x-m)= Exports - Imports
▶ Parts of the GDP equation meanings. Answer: (C) Consumption: The
amount spent by households on goods and services. Includes durable
(cars, food, clothes, etc) and non-durable (haircuts, dentist appointments,
etc) goods.
Makes up 2/3rds of GDP spending
(I) Investment: Spending by businesses on machinery, factories,
equipment, tools. Spending by households on new homes. STOCKS
