MICROECONOMICS 7TH EDITION BY JEFFREY
M PERLOFF 2026 FINAL EXAM PREPARATION
WORKBOOK A+
◉ Factors of Production. Answer: Labor, Land, Capital,
Entrepreneurial ability
◉ Physical capital. Answer: Manmade equipment like machinery, but
also buildings, roads, vehicles, and computers
◉ Entrepreneurial Ability. Answer: The effort and know how to put
the other resources (Factors of Production) together in a productive
venture
◉ Scarcity. Answer: The difference between unlimited wants and
limited economic resources
◉ Trade-offs. Answer: The fact that we are faced with scarce
resources implies that individuals, firms, and governments are
constantly faced with trade-offs
◉ Opportunity Cost. Answer: The opportunity cost of doing
something is what you sacrifice to do it (i.e. if you use a scarce
,resource to pursue activity X, the opportunity cost of activity X is
activity Y, the next best use of that resource)
◉ Marginal Analysis. Answer: Rational individuals and firms weigh
the additional benefits against the additional costs (They think at
the margin)
◉ Marginal. Answer: "the next one" or "additional" or "incremental"
◉ Marginal Cost. Answer: The additional cost incurred from the
consumption of the next unit of a good or service
◉ Marginal Benefit. Answer: The additional benefit received from
the consumption of the next unit of a good or service
◉ Production Possibilities Curve. Answer: A model of an individual
or a nation that can choose to allocate its scarce resources between
the production of two goods or services, it is assumed that those
resources are being fully employed and used efficiently
◉ Points outside of the Production Possibilities Curve. Answer: Any
point outside the frontier is currently unattainable
,◉ The slope of the PPF. Answer: The slope of the curve measures the
opportunity cost of the good on the x axis
The inverse of the slope measures the opportunity cost of the good
on the y axis
◉ Shape of a realistic PPF. Answer: Concave or bowed outward
◉ Comparative Advantage. Answer: The ability to produce goods at
a lower opportunity cost that another individual/firm/nation
◉ Specialization. Answer: Individuals/firms/nations produce the
goods in which they have a comparative advantage
◉ Productive efficiency. Answer: The economy is producing the
maximum output for a given level of technology and resources (all
points on the PPF are productively efficient)
◉ Allocative efficiency. Answer: The economy is producing the
optimal mix of goods and services (the combination of goods and
services that provides the most net benefit to society; the best point
on the PPF)
◉ Substitution effect. Answer: The change in quantity demanded
resulting from a change in the price of one good relative to the price
of other goods
, ◉ Income effect. Answer: The change in quantity demanded
resulting from a change in the consumer purchasing power (real
income)
◉ Determinants of Demand. Answer: -Consumer income
-The price of a substitute good
-The price of a complimentary good
-Consumer tastes and preferences for the good
-Consumer expectations about the future price of the good
-The number of buyers in the market for that specific good
◉ Normal Good. Answer: A good for which higher income increases
demand
◉ Inferior Good. Answer: A good for which higher income decreases
demand
◉ Substitute Goods. Answer: Two goods are substitute goods if the
consumer can use either to satisfy the same essential function,
therefore experiencing the same degree of happiness (utility)
M PERLOFF 2026 FINAL EXAM PREPARATION
WORKBOOK A+
◉ Factors of Production. Answer: Labor, Land, Capital,
Entrepreneurial ability
◉ Physical capital. Answer: Manmade equipment like machinery, but
also buildings, roads, vehicles, and computers
◉ Entrepreneurial Ability. Answer: The effort and know how to put
the other resources (Factors of Production) together in a productive
venture
◉ Scarcity. Answer: The difference between unlimited wants and
limited economic resources
◉ Trade-offs. Answer: The fact that we are faced with scarce
resources implies that individuals, firms, and governments are
constantly faced with trade-offs
◉ Opportunity Cost. Answer: The opportunity cost of doing
something is what you sacrifice to do it (i.e. if you use a scarce
,resource to pursue activity X, the opportunity cost of activity X is
activity Y, the next best use of that resource)
◉ Marginal Analysis. Answer: Rational individuals and firms weigh
the additional benefits against the additional costs (They think at
the margin)
◉ Marginal. Answer: "the next one" or "additional" or "incremental"
◉ Marginal Cost. Answer: The additional cost incurred from the
consumption of the next unit of a good or service
◉ Marginal Benefit. Answer: The additional benefit received from
the consumption of the next unit of a good or service
◉ Production Possibilities Curve. Answer: A model of an individual
or a nation that can choose to allocate its scarce resources between
the production of two goods or services, it is assumed that those
resources are being fully employed and used efficiently
◉ Points outside of the Production Possibilities Curve. Answer: Any
point outside the frontier is currently unattainable
,◉ The slope of the PPF. Answer: The slope of the curve measures the
opportunity cost of the good on the x axis
The inverse of the slope measures the opportunity cost of the good
on the y axis
◉ Shape of a realistic PPF. Answer: Concave or bowed outward
◉ Comparative Advantage. Answer: The ability to produce goods at
a lower opportunity cost that another individual/firm/nation
◉ Specialization. Answer: Individuals/firms/nations produce the
goods in which they have a comparative advantage
◉ Productive efficiency. Answer: The economy is producing the
maximum output for a given level of technology and resources (all
points on the PPF are productively efficient)
◉ Allocative efficiency. Answer: The economy is producing the
optimal mix of goods and services (the combination of goods and
services that provides the most net benefit to society; the best point
on the PPF)
◉ Substitution effect. Answer: The change in quantity demanded
resulting from a change in the price of one good relative to the price
of other goods
, ◉ Income effect. Answer: The change in quantity demanded
resulting from a change in the consumer purchasing power (real
income)
◉ Determinants of Demand. Answer: -Consumer income
-The price of a substitute good
-The price of a complimentary good
-Consumer tastes and preferences for the good
-Consumer expectations about the future price of the good
-The number of buyers in the market for that specific good
◉ Normal Good. Answer: A good for which higher income increases
demand
◉ Inferior Good. Answer: A good for which higher income decreases
demand
◉ Substitute Goods. Answer: Two goods are substitute goods if the
consumer can use either to satisfy the same essential function,
therefore experiencing the same degree of happiness (utility)
