ECO 201 Exam 1 (Patel) Questions
and Answers 100% Pass
Understand what resources are and what it means for them to be scarce. - ✔✔Scarcity -
unlimited wants + limited resources
Resources - Factors of Production (land, labor, animals, capital, technology,
entrepreneurial activity)
3 most important economic questions: - ✔✔1) What/how much to produce?
2) How to produce?
3) For whom to produce?
7 Principles of Microeconomics: - ✔✔1) People face trade-offs
2) Opportunity costs (Highest valued "thing" given up)
3) Thinking at the Margin (MB>MC = good; do not take into account sunk costs)
4) People respond to incentives - both positive and negative (Policy makers must think
of long-term implications)
5) Trade makes everyone better off
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, 6) Markets organize economic activity (Know the difference between a market v.
command economy and how they answer the 3 economic questions)
•Market Economy - more efficient, less equality (Invisible Hand)
•Command Economy - less efficient, more equality
7) Government can sometimes improve market economies (invisible handshake,
invisible foot)
Scientific Methods - ✔✔Economists observe and test theories
Economic Theory - ✔✔Generalization about about the workings of an abstract economy
Economic Model - ✔✔Use simple abstract models to study larger, more complex
concepts
Positive v. Normative Statement - ✔✔Positive - Can be proven or disproven
Normative - Opinion
Secondary Effects to Economic Policy - ✔✔Unintended effects to economic policy
Circular Flow Model (Know picture) - ✔✔Economic Agents:
•Households - Own factors of production; buy goods and services
•Firms - Buy factors of production and produce goods and sell services
Types of Markets:
EMILY CHARLENE © 2025, ALL RIGHTS RESERVED 2
and Answers 100% Pass
Understand what resources are and what it means for them to be scarce. - ✔✔Scarcity -
unlimited wants + limited resources
Resources - Factors of Production (land, labor, animals, capital, technology,
entrepreneurial activity)
3 most important economic questions: - ✔✔1) What/how much to produce?
2) How to produce?
3) For whom to produce?
7 Principles of Microeconomics: - ✔✔1) People face trade-offs
2) Opportunity costs (Highest valued "thing" given up)
3) Thinking at the Margin (MB>MC = good; do not take into account sunk costs)
4) People respond to incentives - both positive and negative (Policy makers must think
of long-term implications)
5) Trade makes everyone better off
EMILY CHARLENE © 2025, ALL RIGHTS RESERVED 1
, 6) Markets organize economic activity (Know the difference between a market v.
command economy and how they answer the 3 economic questions)
•Market Economy - more efficient, less equality (Invisible Hand)
•Command Economy - less efficient, more equality
7) Government can sometimes improve market economies (invisible handshake,
invisible foot)
Scientific Methods - ✔✔Economists observe and test theories
Economic Theory - ✔✔Generalization about about the workings of an abstract economy
Economic Model - ✔✔Use simple abstract models to study larger, more complex
concepts
Positive v. Normative Statement - ✔✔Positive - Can be proven or disproven
Normative - Opinion
Secondary Effects to Economic Policy - ✔✔Unintended effects to economic policy
Circular Flow Model (Know picture) - ✔✔Economic Agents:
•Households - Own factors of production; buy goods and services
•Firms - Buy factors of production and produce goods and sell services
Types of Markets:
EMILY CHARLENE © 2025, ALL RIGHTS RESERVED 2
