Microeconomics Exam 1 Study Guide with
Complete Version with Verified Solutions
Economics - Answer the study of how human beings coordinate their wants and desires given the
decision making mechanisms, social customs, and political realities of the society
Central Problems - Answer ● What, and how much, to produce
● How to produce it
● For whom to produce it
Key Decision Making Mechanisms - Answer Price and Trade
Scarcity - Answer The goods available are too few to satisfy individuals' desires
Microeconomics - Answer The study of individual choice, and how that choice is influenced by economic
forces
Macroeconomics - Answer The study of the economy as a whole (aggregate)
Marginal Analysis - Answer Additional cost or benefit of consuming one more
Sunk Cost - Answer Costs that have already been incurred and cannot be resolved or recovered
Marginal Benefit - Answer The additional benefit above what you have already derived
Opportunity Cost - Answer The benefit that you might have gained from choosing the next best
alternative
Invisible Hand - Answer The price mechanism, the rise and fall of prices that guides our actions in a
market. Idea from Adam Smith "Father of Capitalism"
, Efficiency - Answer Achieving a goal as cheaply as possible
Economics Policies - Answer Are actions (or inaction) taken by the government to influence economic
actions
Positive Economics - Answer The study of what is and how the economy works
Normative Economics - Answer The study of what the goals of the economy should be
Art of Economics - Answer The application of the knowledge learned in positive economics to achieve
the goals one has determined in normative economics
Production Possibility Model - Answer conveys the tradeoffs involved in a choice of a what to produce
Increasing Opportunity Cost - Answer As you produce more and more of something, you have to give up
more of something else
Comparative Advantage - Answer Better suited to the production of one good than to the production of
another good
Technology - Answer Methods used to produce something- techniques of production
Market Economy - Answer An economic system based on private property and the market in which, in
principle, individuals decide how, what, and for whom to produce
Rule of Law - Answer To govern private property
Mercantilism - Answer Prior to market economy, economic system focused to bring wealth to the nation
state
Complete Version with Verified Solutions
Economics - Answer the study of how human beings coordinate their wants and desires given the
decision making mechanisms, social customs, and political realities of the society
Central Problems - Answer ● What, and how much, to produce
● How to produce it
● For whom to produce it
Key Decision Making Mechanisms - Answer Price and Trade
Scarcity - Answer The goods available are too few to satisfy individuals' desires
Microeconomics - Answer The study of individual choice, and how that choice is influenced by economic
forces
Macroeconomics - Answer The study of the economy as a whole (aggregate)
Marginal Analysis - Answer Additional cost or benefit of consuming one more
Sunk Cost - Answer Costs that have already been incurred and cannot be resolved or recovered
Marginal Benefit - Answer The additional benefit above what you have already derived
Opportunity Cost - Answer The benefit that you might have gained from choosing the next best
alternative
Invisible Hand - Answer The price mechanism, the rise and fall of prices that guides our actions in a
market. Idea from Adam Smith "Father of Capitalism"
, Efficiency - Answer Achieving a goal as cheaply as possible
Economics Policies - Answer Are actions (or inaction) taken by the government to influence economic
actions
Positive Economics - Answer The study of what is and how the economy works
Normative Economics - Answer The study of what the goals of the economy should be
Art of Economics - Answer The application of the knowledge learned in positive economics to achieve
the goals one has determined in normative economics
Production Possibility Model - Answer conveys the tradeoffs involved in a choice of a what to produce
Increasing Opportunity Cost - Answer As you produce more and more of something, you have to give up
more of something else
Comparative Advantage - Answer Better suited to the production of one good than to the production of
another good
Technology - Answer Methods used to produce something- techniques of production
Market Economy - Answer An economic system based on private property and the market in which, in
principle, individuals decide how, what, and for whom to produce
Rule of Law - Answer To govern private property
Mercantilism - Answer Prior to market economy, economic system focused to bring wealth to the nation
state
