ECON 102 Exam 1 Questions with 100% Correct
Answers
True or False: When both the demand and supply curve shift, you can always determine
the effect on price and quantity without knowing the magnitude of the shifts.
False
True or False: When both demand and supply curves shift, the curve that shifts with
smaller magnitude determines effect on undetermined equilibrium object
False
Scarcity
Limited nature of society's resources
Economics
The study of how society manages its scarce resources
-How much people decided what to buy, how much to work, save, and spend
-How firms decide how much to produce, how many workers to hire
-how society decides how to divide its resources between national defense, consumer goods,
protecting the environment, and other needs
Efficiency
When society gets the most from its scarce resources
Equality
When prosperity is distributed uniformly among society's members
,Tradeoff
To achieve greater equality, could redistribute income from wealthy to poor. But this reduces
incentive to work and produce, shrinks size of economic "pie".
Opportunity Cost
Whatever must be given up to obtain it
Rational People
-Systematically and purposefully do the best they can to achieve their objectives.
-Make decisions by evaluating costs and benefits of marginal changes
Marginal Changes
Incremental adjustments to an existing plan.
Incentive
-Something that induces a person to act. Ex: the prospect of a reward or punishment.
-Rational people respond to incentives
Market
A group of buyers and sellers (need not be in a single location)
"Organize economic activity"
-What goods to produce
-How to produce them
-How much of each to produce
-Who gets them
, Market Economy
Allocates resources through decentralized decisions of many households and firms as they
interact in markets.
Invisible Hand
-Written by Adam Smith in "The Wealth of Nations" (1776)
-Each of these households and firms acts as if "led by an invisible hand" to promote economic
well-being.
-Interaction of buyers and sellers determines prices
-Each price reflects the good's value to buyers and the cost of producing the good
-Prices guide self-interested households and firms to make decisions that, in many cases,
maximize society's economic well-being
Enforce Property Rights
Important role for government
Market Failure
When the market fails to allocate society's resources efficiently.
Causes of Market Failure
Externalities and Market Power
Externalities
When the production or consumption of a good affects bystanders. (Ex: pollution)
Market Power
Answers
True or False: When both the demand and supply curve shift, you can always determine
the effect on price and quantity without knowing the magnitude of the shifts.
False
True or False: When both demand and supply curves shift, the curve that shifts with
smaller magnitude determines effect on undetermined equilibrium object
False
Scarcity
Limited nature of society's resources
Economics
The study of how society manages its scarce resources
-How much people decided what to buy, how much to work, save, and spend
-How firms decide how much to produce, how many workers to hire
-how society decides how to divide its resources between national defense, consumer goods,
protecting the environment, and other needs
Efficiency
When society gets the most from its scarce resources
Equality
When prosperity is distributed uniformly among society's members
,Tradeoff
To achieve greater equality, could redistribute income from wealthy to poor. But this reduces
incentive to work and produce, shrinks size of economic "pie".
Opportunity Cost
Whatever must be given up to obtain it
Rational People
-Systematically and purposefully do the best they can to achieve their objectives.
-Make decisions by evaluating costs and benefits of marginal changes
Marginal Changes
Incremental adjustments to an existing plan.
Incentive
-Something that induces a person to act. Ex: the prospect of a reward or punishment.
-Rational people respond to incentives
Market
A group of buyers and sellers (need not be in a single location)
"Organize economic activity"
-What goods to produce
-How to produce them
-How much of each to produce
-Who gets them
, Market Economy
Allocates resources through decentralized decisions of many households and firms as they
interact in markets.
Invisible Hand
-Written by Adam Smith in "The Wealth of Nations" (1776)
-Each of these households and firms acts as if "led by an invisible hand" to promote economic
well-being.
-Interaction of buyers and sellers determines prices
-Each price reflects the good's value to buyers and the cost of producing the good
-Prices guide self-interested households and firms to make decisions that, in many cases,
maximize society's economic well-being
Enforce Property Rights
Important role for government
Market Failure
When the market fails to allocate society's resources efficiently.
Causes of Market Failure
Externalities and Market Power
Externalities
When the production or consumption of a good affects bystanders. (Ex: pollution)
Market Power
