ECON 201 EXAM 1 Terms questions with verified ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
detailed answers ||//\\||
Economics - ✔✔The study of the choices consumers, business managers, and government ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
officials make to attain their foals, give scarce resources.
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Scarcity - ✔✔Although our wants are unlimited, the resources available are not.
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3 Key Economic Ideas - ✔✔People are rational. People respond to economics incentives.
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Optimal decisions are made at the margin. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Tradeoffs - ✔✔Producing more of one good or service means producing less of another
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good or service. ||//\\|| ||//\\||
Opportunity Cost - ✔✔The highest valued alternative that must be given up to engage in an ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
activity.
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Centrally Planned Economy - ✔✔An economy in which the government decides how
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economic resources will be allocated. ||//\\|| ||//\\|| ||//\\|| ||//\\||
Market Economy - ✔✔An economy in which the decisions of households and firms
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
interacting in markets allocate economic resources. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Market Economy - ✔✔Households and firms ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Centrally Planned - ✔✔Government ||//\\|| ||//\\|| ||//\\||
, Mixed Economy - ✔✔An economy in which most economic decisions result from the
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interaction of buyers and sellers in markets but in which the government plays a significant ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
role in the allocation of resources.
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Productive Efficiency - ✔✔When a good or service is produced at the lowest possible cost. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Allocative Efficiency - ✔✔A state of the economy in which production is in accordance ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
with consumer preferences; in particular, every good or service is produced up to the point
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where the last unit provides a marginal benefit to society equal to the marginal cost of
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producing it. ||//\\||
Steps Economists use to make a useful economic model - ✔✔Decide on the assumptions to
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use in developing the model. Formulate a testable hypothesis. Use economic data to test the
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
hypothesis. Revise the model if it fails to explain the economic data well. Retain the revised
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model to help answer similar economic questions in the future.
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Economic Variable - ✔✔Something measurable that can have different values, such as the ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
incomes of doctors. ||//\\|| ||//\\||
Hypothesis - ✔✔Statement that can be correct or incorrect about an economic variable. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Equity - ✔✔The fair distribution of economic benefits. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Positive Analysis - ✔✔Analysis concerned with what is. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Normative Analysis - ✔✔Analysis concerned with what ought to be. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
detailed answers ||//\\||
Economics - ✔✔The study of the choices consumers, business managers, and government ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
officials make to attain their foals, give scarce resources.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Scarcity - ✔✔Although our wants are unlimited, the resources available are not.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
3 Key Economic Ideas - ✔✔People are rational. People respond to economics incentives.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Optimal decisions are made at the margin. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Tradeoffs - ✔✔Producing more of one good or service means producing less of another
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
good or service. ||//\\|| ||//\\||
Opportunity Cost - ✔✔The highest valued alternative that must be given up to engage in an ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
activity.
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Centrally Planned Economy - ✔✔An economy in which the government decides how
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
economic resources will be allocated. ||//\\|| ||//\\|| ||//\\|| ||//\\||
Market Economy - ✔✔An economy in which the decisions of households and firms
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
interacting in markets allocate economic resources. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Market Economy - ✔✔Households and firms ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Centrally Planned - ✔✔Government ||//\\|| ||//\\|| ||//\\||
, Mixed Economy - ✔✔An economy in which most economic decisions result from the
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
interaction of buyers and sellers in markets but in which the government plays a significant ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
role in the allocation of resources.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Productive Efficiency - ✔✔When a good or service is produced at the lowest possible cost. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Allocative Efficiency - ✔✔A state of the economy in which production is in accordance ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
with consumer preferences; in particular, every good or service is produced up to the point
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
where the last unit provides a marginal benefit to society equal to the marginal cost of
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
producing it. ||//\\||
Steps Economists use to make a useful economic model - ✔✔Decide on the assumptions to
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
use in developing the model. Formulate a testable hypothesis. Use economic data to test the
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
hypothesis. Revise the model if it fails to explain the economic data well. Retain the revised
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
model to help answer similar economic questions in the future.
||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Economic Variable - ✔✔Something measurable that can have different values, such as the ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
incomes of doctors. ||//\\|| ||//\\||
Hypothesis - ✔✔Statement that can be correct or incorrect about an economic variable. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Equity - ✔✔The fair distribution of economic benefits. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Positive Analysis - ✔✔Analysis concerned with what is. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
Normative Analysis - ✔✔Analysis concerned with what ought to be. ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\|| ||//\\||
