ECON 2213 EXAM 1 QUESTIONS AND VERIFIED
ANSWERS
What is economics - Answers - the study of how people make decisions with limited
resources
Difference between microeconomics and macroeconomics - Answers -
Microeconomics:
Decisions made by individual units such as consumers and firms in a single market.
Macroeconomics:
The choices and the performance of the entire economy.
What is scarcity - Answers - Limited resources to satisfy unlimited human wants
What are the factors of production and their rewards - Answers - Land = all natural
resources(reward is rent)
Labor = human skills & efforts (reward is wages)
Capital= man-made goods that produce other goods (reward is interest)
Entrepreneurship = management of other resources (reward is profit)
What is opportunity cost - Answers - value of the next best alternative given up
What does it mean by"there is no free lunch" - Answers - that whatever goods and
services are provided, they must be paid for by someone - that is, you don't get
something for nothing.The phrase there's no free lunch means you don't get something
for nothing, or anything one receives for free will be paid for in another way.
What is deciding on the margin - Answers - Make decisions by comparing marginal
costs and marginal benefits.
Marginal = additional/ extra
The first glass of lemonade on a hot day quenches your thirst, but the next glass,
maybe not so much. If you think at the margin, you are thinking about what the next or
additional action means for you.
What is meant by "people respond to incentives - Answers - Changes in rewards attract
people to change decisions
How do economists build and use economic models - Answers - To explain a real world
activity or event
To find solutions to real problems
, To predict future.
(To predict economic activities in which conclusions are drawn based on assumptions
To prescribe new economic guidelines that will change future economic behaviors
To provide logical defense to justify economic policies at three levels: national/political,
organizational, and household
For planning and allocating resources and planning logistics and business leadership
To assist with trading and investment speculation)
Ceteris Paribus - Answers - = all other things constant except the variable we are
studying
Difference between normative and positive statements - Answers - Positive=Facts,
Supported or rejected by evidence,Objective
Normative=Judgment and opinions, Can not be verified by facts, Subjective
What are the basic economic questions for every society - Answers - What goods and
services are to be produced?
How are these goods and services to be produced?
Who will receive these goods and services?
Production Possibilities Frontier(PPF) - Answers - A graph that represents the maximum
possible combination of two goods that can be produced with given resources and
technology
Which points are attainable vs. Unattainable - Answers - Points outside the curve
= unattainable
Points inside & on the curve
= attainable
How is opportunity cost found from PPF - Answers - = Negative slope of PPF at every
point
(PPF is bowed out
Law of Increasing Opportunity Costs:
Because resources are specialized)
Which points are efficient vs. Inefficient - Answers - Efficiency
= full employment
= Points on the curve
Opportunity cost to increase production.
Inefficiency:
= unemployment
= Points inside the curve
No opportunity cost to increase production
ANSWERS
What is economics - Answers - the study of how people make decisions with limited
resources
Difference between microeconomics and macroeconomics - Answers -
Microeconomics:
Decisions made by individual units such as consumers and firms in a single market.
Macroeconomics:
The choices and the performance of the entire economy.
What is scarcity - Answers - Limited resources to satisfy unlimited human wants
What are the factors of production and their rewards - Answers - Land = all natural
resources(reward is rent)
Labor = human skills & efforts (reward is wages)
Capital= man-made goods that produce other goods (reward is interest)
Entrepreneurship = management of other resources (reward is profit)
What is opportunity cost - Answers - value of the next best alternative given up
What does it mean by"there is no free lunch" - Answers - that whatever goods and
services are provided, they must be paid for by someone - that is, you don't get
something for nothing.The phrase there's no free lunch means you don't get something
for nothing, or anything one receives for free will be paid for in another way.
What is deciding on the margin - Answers - Make decisions by comparing marginal
costs and marginal benefits.
Marginal = additional/ extra
The first glass of lemonade on a hot day quenches your thirst, but the next glass,
maybe not so much. If you think at the margin, you are thinking about what the next or
additional action means for you.
What is meant by "people respond to incentives - Answers - Changes in rewards attract
people to change decisions
How do economists build and use economic models - Answers - To explain a real world
activity or event
To find solutions to real problems
, To predict future.
(To predict economic activities in which conclusions are drawn based on assumptions
To prescribe new economic guidelines that will change future economic behaviors
To provide logical defense to justify economic policies at three levels: national/political,
organizational, and household
For planning and allocating resources and planning logistics and business leadership
To assist with trading and investment speculation)
Ceteris Paribus - Answers - = all other things constant except the variable we are
studying
Difference between normative and positive statements - Answers - Positive=Facts,
Supported or rejected by evidence,Objective
Normative=Judgment and opinions, Can not be verified by facts, Subjective
What are the basic economic questions for every society - Answers - What goods and
services are to be produced?
How are these goods and services to be produced?
Who will receive these goods and services?
Production Possibilities Frontier(PPF) - Answers - A graph that represents the maximum
possible combination of two goods that can be produced with given resources and
technology
Which points are attainable vs. Unattainable - Answers - Points outside the curve
= unattainable
Points inside & on the curve
= attainable
How is opportunity cost found from PPF - Answers - = Negative slope of PPF at every
point
(PPF is bowed out
Law of Increasing Opportunity Costs:
Because resources are specialized)
Which points are efficient vs. Inefficient - Answers - Efficiency
= full employment
= Points on the curve
Opportunity cost to increase production.
Inefficiency:
= unemployment
= Points inside the curve
No opportunity cost to increase production
