Microeconomics Exam I Review
Questions (Chapters 1-6) With 100%
Correct Answers
1. What are the three basic questions that every economy must address? (1) - CORRECT
ANSWER✔✔The three basic questions that every economy must address are: what is produced,
how is it produced, and for whom is it produced.
2. What is the key difference between a market-oriented economy and a command economy?
(1) - CORRECT ANSWER✔✔The key difference between market and command economy is that
government plays a background role in market-oriented, while govt makes most decisions in
command.
3. What does the phrase "division of labor" mean? (1) - CORRECT ANSWER✔✔Division of labor
is the splitting up of work, the specialization, for a certain product where different tasks are
given to many people
4. What three reasons explain why the division of labor increases an economy's level of
production? (1) - CORRECT ANSWER✔✔Three reasons are: it allows the makers to focus on
areas of advantage from natural factors and skills; it encourages the makers to learn and invent;
and it allows makers to take advantage of economies of scale
5. What is globalization? How do you think it might have affected the economy over the past
decade? (1) - CORRECT ANSWER✔✔Globalization is the trend where buying/selling markets
have increasingly become international. This has made economies more interdependent.
6. What is the difference between microeconomics and macroeconomics? (1) - CORRECT
ANSWER✔✔The difference is that micro focuses on individuals, firms and industries, while
macro focuses on overall issues and topics.
, 7. Are households primarily buyers or sellers in the goods and services market? The labor
market? The financial capital market? Are firms primarily buyers or sellers in each of these three
markets? (1) - CORRECT ANSWER✔✔Households are primarily buyers/demanders in the goods
and services, sellers/suppliers in the labor, and either of the two in the FC market. Firms are
primarily sellers/suppliers in the G&S, buyers/demanders in the labor, and either in the FC
market.
8. What are the four primary goals of macroeconomics? (1) - CORRECT ANSWER✔✔The four
primary goals are: growth in the standard of living, low unemployment, low inflation, and a
sustainable balance of trade.
1. Explain why scarcity leads to trade-offs. (2) - CORRECT ANSWER✔✔Scarcity leads to trade-
offs because there isn't enough to have everything desired, so room must be made for the more
desirable good
2. Name the three main categories of economic trade-offs that individuals face. (2) - CORRECT
ANSWER✔✔The three main categories of individual economic trade-off are consumption, labor-
leisure and intertemporal.
3. What determines the slope of the consumption choice budget constraint? The labor-leisure
budget constraint? The intertemporal budget constraint? (2) - CORRECT ANSWER✔✔The slope
of the consumption choice budget constraint depends on the cost of the good or service. The
labor-leisure slope depends on the income. The intertemporal slope depends on the interest
rate
4. Explain why individuals make choices that are directly on the budget constraint, rather than
inside the budget constraint or outside it. (2) - CORRECT ANSWER✔✔Individuals make decisions
directly on the budget constraint because ones above are impossible and ones below are a
waste of money.
Questions (Chapters 1-6) With 100%
Correct Answers
1. What are the three basic questions that every economy must address? (1) - CORRECT
ANSWER✔✔The three basic questions that every economy must address are: what is produced,
how is it produced, and for whom is it produced.
2. What is the key difference between a market-oriented economy and a command economy?
(1) - CORRECT ANSWER✔✔The key difference between market and command economy is that
government plays a background role in market-oriented, while govt makes most decisions in
command.
3. What does the phrase "division of labor" mean? (1) - CORRECT ANSWER✔✔Division of labor
is the splitting up of work, the specialization, for a certain product where different tasks are
given to many people
4. What three reasons explain why the division of labor increases an economy's level of
production? (1) - CORRECT ANSWER✔✔Three reasons are: it allows the makers to focus on
areas of advantage from natural factors and skills; it encourages the makers to learn and invent;
and it allows makers to take advantage of economies of scale
5. What is globalization? How do you think it might have affected the economy over the past
decade? (1) - CORRECT ANSWER✔✔Globalization is the trend where buying/selling markets
have increasingly become international. This has made economies more interdependent.
6. What is the difference between microeconomics and macroeconomics? (1) - CORRECT
ANSWER✔✔The difference is that micro focuses on individuals, firms and industries, while
macro focuses on overall issues and topics.
, 7. Are households primarily buyers or sellers in the goods and services market? The labor
market? The financial capital market? Are firms primarily buyers or sellers in each of these three
markets? (1) - CORRECT ANSWER✔✔Households are primarily buyers/demanders in the goods
and services, sellers/suppliers in the labor, and either of the two in the FC market. Firms are
primarily sellers/suppliers in the G&S, buyers/demanders in the labor, and either in the FC
market.
8. What are the four primary goals of macroeconomics? (1) - CORRECT ANSWER✔✔The four
primary goals are: growth in the standard of living, low unemployment, low inflation, and a
sustainable balance of trade.
1. Explain why scarcity leads to trade-offs. (2) - CORRECT ANSWER✔✔Scarcity leads to trade-
offs because there isn't enough to have everything desired, so room must be made for the more
desirable good
2. Name the three main categories of economic trade-offs that individuals face. (2) - CORRECT
ANSWER✔✔The three main categories of individual economic trade-off are consumption, labor-
leisure and intertemporal.
3. What determines the slope of the consumption choice budget constraint? The labor-leisure
budget constraint? The intertemporal budget constraint? (2) - CORRECT ANSWER✔✔The slope
of the consumption choice budget constraint depends on the cost of the good or service. The
labor-leisure slope depends on the income. The intertemporal slope depends on the interest
rate
4. Explain why individuals make choices that are directly on the budget constraint, rather than
inside the budget constraint or outside it. (2) - CORRECT ANSWER✔✔Individuals make decisions
directly on the budget constraint because ones above are impossible and ones below are a
waste of money.
