ECON 2010 FINAL EXAM QUESTIONS AND CORRECT ANSWERS

ECON 2010 FINAL EXAM QUESTIONS
AND CORRECT ANSWERS
Opportunity Cost ✅✅CORRECT ANSW-whatever must be given up to obtain a certain item



3rd Principle of Economics ✅✅CORRECT ANSW-rational people think at the margin



rational people ✅✅CORRECT ANSW-people who systematically and purposefully do the best they
can to achieve their objectives



marginal changes ✅✅CORRECT ANSW-incremental adjustments to an existing plan used after
evaluating costs and benefits



4th Principle of Economics ✅✅CORRECT ANSW-people respond to incentives



incentive ✅✅CORRECT ANSW-something that induces a person to act (prospect of reward or
punishment)



5th Principle of Economics ✅✅CORRECT ANSW-trade can make everyone better off



6th Principle of Economics ✅✅CORRECT ANSW-markets are usually a good way to organize
economic activity



Scarcity ✅✅CORRECT ANSW-the limited nature of society's

resources



Economics ✅✅CORRECT ANSW-the study of how society manages

its scarce resources



1st Principle of Economics ✅✅CORRECT ANSW-people face tradeoffs

,2nd Principle of Economics ✅✅CORRECT ANSW-the cost of something is what you give up to get
it

market ✅✅CORRECT ANSW-a group of buyers and sellers



market economy ✅✅CORRECT ANSW-allocates resources through the decentralized decision of
many households and firms as they interact in markets



invisible hand of the market ✅✅CORRECT ANSW-Adam Smith's The Wealth of Nations explains
households and firms act as if led by this to promote general economic well-being



7th Principle of Economics ✅✅CORRECT ANSW-governments can sometimes improve market
outcomes



Role of Government ✅✅CORRECT ANSW-enforce property rights



Market Failure ✅✅CORRECT ANSW-when the market fails to allocate society's resources
efficiently



externalities ✅✅CORRECT ANSW-when the production or consumption of a good affects
bystanders



Market power ✅✅CORRECT ANSW-a single buyer or seller has substantial influence on market
price (e.g. monopoly)



public policy ✅✅CORRECT ANSW-___________ may promote efficiency.



government ✅✅CORRECT ANSW-_____________ may alter outcomes to promote equity



8th Principle of Economics ✅✅CORRECT ANSW-a country's standard of living depends on its
ability to produce goods and services



productivity ✅✅CORRECT ANSW-the amount of goods and services produced per unit of labor

, 9th Principle of Economics ✅✅CORRECT ANSW-prices rise when the government prints too much
money



inflation ✅✅CORRECT ANSW-increases in the general price levels which are, in the long run,
almost always caused by excessive growth in the quantity of money which causes the value of
money to fall



10th Principle of Economics ✅✅CORRECT ANSW-society faces a short-run tradeoff between
inflation and unemployment



two roles of economists ✅✅CORRECT ANSW-scientists (try to explain the world) and policy
advisors (try to improve the world)



scientific method ✅✅CORRECT ANSW-the dispassionate development and testing of theories
about how the world works



assumptions ✅✅CORRECT ANSW-simplify the complex world to make it easier to understand



model ✅✅CORRECT ANSW-a highly simplified representation of a more complicated reality



microeconomics ✅✅CORRECT ANSW-the study of how households and firms make decisions and
how they interact in markets



macroeconomics ✅✅CORRECT ANSW-the study of economy-wide phenomena, including
inflation, unemployment, and economic growth



positive statements ✅✅CORRECT ANSW-describe the world as it is



normative statements ✅✅CORRECT ANSW-describe the world as it should be



Production Possibilities Frontier (PPF) ✅✅CORRECT ANSW-a graph that shows the combinations
of two goods the economy can possibly produce given the available resources and the available
technology