Econ 212 Midterm || WITH A+ GRADED SOLUTIONS
1. Why do countries trade? What causes there to be benefits to trade? correct answers Trade
makes everyone better off because consumptions is much higher when trade is involved.
Causes- Absolute Advantage: producing a good using fewer inputs than another producer. If
Each country has absolute advantage in 1 good + specializes in that good then both countries
gain from trade, Comparative advantage: the ability to produce a good at a lower opportunity
cost than another producer. When each country specializes in that good in which it has
comparative advantage total productions is higher in all countries, the worlds economic pie is
bigger and all the countries gain from trade.
2. Define a normative statement, positive statement. Be able to determine the difference
between them. And identify sentences that are correct answers Normative Statements-
attempt to describe how the world should be. Positive Statement- attempt to describe the
world as it is. Normative Ex: The government should print less money.
Positive Ex: Prices rise when the gov't increases quantity of money.
3. The participants in the circular flow diagram are ________________ and
________________. The markets in the circular flow diagram are ________________ and
________________. correct answers 3. The participants in the circular flow diagram are
_FIRMS_ and _HOUSEHOLDS__. The markets in the circular flow diagram are GOODS
AND SERVICES___ and FACTORS OF PRODUCTION.
4. What is the difference between Micro and Macroeconomics? correct answers
Microeconomics is the study of economics from a more individual point of view (ex:
consumers and their spending habits and firms in how they make profits) and how economy
affects people in their daily lives. Macroeconomics is economics from a 'big picture'
perspective, such as how our country's economy affects the world as a whole, etc.
5. Production Possibility Frontier -
a. What causes shifts in the production possibility frontier?
b. What is implied by a point inside the PPF?
i. How could this happen?
c. What is implied by a point outside of the PPF?
i. How could this happen?
d. What does an economy producing efficiently imply?
e. What is the general shape of the PPF? How is it related to opportunity cost?
f. When is an economy's production possibilities frontier also its consumption possibilities
frontier? correct answers a. Economic Growth; Ex: Improvement in technology.
b. Possible but not efficient.
i. Some resources under utilized, Ex: Workers unemployed
c. Not Possible
i. Extra hours of labor, Ex: 65,000 hrs isn't possible b/c the economy only has 50,00 hrs.
d. All resources are utilized.
e. A slope or bow shaped if the opportunity cost is constant PPF is straight. If opportunity
cost of a good rises as the economy produces more of the good, PPF is bow shaped.
f. A PPF is also a CPF when the PPF is at its full efficiency, because a CPF is the maximum
quantity of goods that an economy can consume in a specified situation.
1. Why do countries trade? What causes there to be benefits to trade? correct answers Trade
makes everyone better off because consumptions is much higher when trade is involved.
Causes- Absolute Advantage: producing a good using fewer inputs than another producer. If
Each country has absolute advantage in 1 good + specializes in that good then both countries
gain from trade, Comparative advantage: the ability to produce a good at a lower opportunity
cost than another producer. When each country specializes in that good in which it has
comparative advantage total productions is higher in all countries, the worlds economic pie is
bigger and all the countries gain from trade.
2. Define a normative statement, positive statement. Be able to determine the difference
between them. And identify sentences that are correct answers Normative Statements-
attempt to describe how the world should be. Positive Statement- attempt to describe the
world as it is. Normative Ex: The government should print less money.
Positive Ex: Prices rise when the gov't increases quantity of money.
3. The participants in the circular flow diagram are ________________ and
________________. The markets in the circular flow diagram are ________________ and
________________. correct answers 3. The participants in the circular flow diagram are
_FIRMS_ and _HOUSEHOLDS__. The markets in the circular flow diagram are GOODS
AND SERVICES___ and FACTORS OF PRODUCTION.
4. What is the difference between Micro and Macroeconomics? correct answers
Microeconomics is the study of economics from a more individual point of view (ex:
consumers and their spending habits and firms in how they make profits) and how economy
affects people in their daily lives. Macroeconomics is economics from a 'big picture'
perspective, such as how our country's economy affects the world as a whole, etc.
5. Production Possibility Frontier -
a. What causes shifts in the production possibility frontier?
b. What is implied by a point inside the PPF?
i. How could this happen?
c. What is implied by a point outside of the PPF?
i. How could this happen?
d. What does an economy producing efficiently imply?
e. What is the general shape of the PPF? How is it related to opportunity cost?
f. When is an economy's production possibilities frontier also its consumption possibilities
frontier? correct answers a. Economic Growth; Ex: Improvement in technology.
b. Possible but not efficient.
i. Some resources under utilized, Ex: Workers unemployed
c. Not Possible
i. Extra hours of labor, Ex: 65,000 hrs isn't possible b/c the economy only has 50,00 hrs.
d. All resources are utilized.
e. A slope or bow shaped if the opportunity cost is constant PPF is straight. If opportunity
cost of a good rises as the economy produces more of the good, PPF is bow shaped.
f. A PPF is also a CPF when the PPF is at its full efficiency, because a CPF is the maximum
quantity of goods that an economy can consume in a specified situation.
