ECO 201 Miami University Exam 1
Questions and Answers 100% Pass
3 assumptions of economics - ✔✔1) people are rational & use available info to make
decisions
2) people respond to incentives
3) people make decisions at the margin (the next or additional unit)
marginal cost - ✔✔the cost of the next unit
marginal benefit - ✔✔the benefit of the next unit
(if marginal benefit > marginal cost, it's a good choice)
Opportunity cost - ✔✔includes the cost you directly pay PLUS the value of the
alternative activity you give up. includes all cost, both implicit & explicit. also is the best
measure of cost.
3 basic questions of economics - ✔✔1) WHAT goods & services should be produced?
2) HOW will these goods & services be produced?
EMILY CHARLENE © 2025, ALL RIGHTS RESERVED 1
, 3) WHO will receive these goods & services?
3 types of economies - ✔✔-planned
-market based
-mixed
Planned economy - ✔✔the government decides
Market-based economy - ✔✔decisions are made by the market
Mixed economy - ✔✔both markets & the government decide
allocative efficiency - ✔✔a market is allocatively efficient if all goods & services are
produced where marginal benefit > marginal cost
absolute advantage - ✔✔when one country can produce more of a good than another
country
*unimportant in trade bc trade is based on comparative advantage*
comparative advantage - ✔✔occurs when a country has a lower opportunity cost of
producing a good than another country
*forms the basis of trade*
when is trading beneficial - ✔✔if both countries specialize in producing the good in
which they have a comparative advantage and trade for the other good, both nations
will be better off
EMILY CHARLENE © 2025, ALL RIGHTS RESERVED 2
Questions and Answers 100% Pass
3 assumptions of economics - ✔✔1) people are rational & use available info to make
decisions
2) people respond to incentives
3) people make decisions at the margin (the next or additional unit)
marginal cost - ✔✔the cost of the next unit
marginal benefit - ✔✔the benefit of the next unit
(if marginal benefit > marginal cost, it's a good choice)
Opportunity cost - ✔✔includes the cost you directly pay PLUS the value of the
alternative activity you give up. includes all cost, both implicit & explicit. also is the best
measure of cost.
3 basic questions of economics - ✔✔1) WHAT goods & services should be produced?
2) HOW will these goods & services be produced?
EMILY CHARLENE © 2025, ALL RIGHTS RESERVED 1
, 3) WHO will receive these goods & services?
3 types of economies - ✔✔-planned
-market based
-mixed
Planned economy - ✔✔the government decides
Market-based economy - ✔✔decisions are made by the market
Mixed economy - ✔✔both markets & the government decide
allocative efficiency - ✔✔a market is allocatively efficient if all goods & services are
produced where marginal benefit > marginal cost
absolute advantage - ✔✔when one country can produce more of a good than another
country
*unimportant in trade bc trade is based on comparative advantage*
comparative advantage - ✔✔occurs when a country has a lower opportunity cost of
producing a good than another country
*forms the basis of trade*
when is trading beneficial - ✔✔if both countries specialize in producing the good in
which they have a comparative advantage and trade for the other good, both nations
will be better off
EMILY CHARLENE © 2025, ALL RIGHTS RESERVED 2
