ECO 201 Midterm #1 Exam Questions and Answers Solved Correctly
What is economics? - Answers the study of the allocation of limited resources across unlimited wants
and desires
What are the factors of production? How are each of them paid? - Answers 1. Land (rent)
2. Labor (wages)
3. Capital (interest)
4. Technology
5. Entrepreneurship
Land - Answers One of the three limited factors of production
it is a limited natural resource (rocks, dirt, water, trees, air, animals)
Labor - Answers One of the three limited factors of production
human resources (anything man-made from humans)
- workers, employees
- the biggest skill you will have in your life and you will continue to work on it your whole life
- you will trade this resource for things that you want/need
Capital - Answers One of the three limited factors of production
- NOT MONEY
-"stuff that makes stuff"
things that we put together to put other things together
-think of machines like robots that make cars
Entrepreneurship - Answers - the person that brings together resources (land, labor, capital) to produce
outputs
-this person must risk their resources for their business and may experience significant loss
Technology - Answers the recipe by which we bring together resources (land, labor, capital) to create
output.
- to produce the same goods you can always use new "recipes"
, Sunk Cost Fallacy - Answers the idea that some costs are essentially "sunk" and shouldn't be considered
when making a decision
examples: all you can eat buffet, semester parking, choosing to finish a boring movie because you
already paid for it
Positive Statement - Answers - what the world looks like
- based on facts and objective view, no value judgements
words to look for: "is", "are"
Normative Statement - Answers - what the would should be
-subjective, opinionated
words to look for: "should"
opportunity cost - Answers The thing or activity we give up to do or get something.
example: giving up getting more sleep by going to class at 8:30 to understand the content
Why is the PPF bowed out? - Answers The PPF is bowed out because of increasing opportunity cost
(which comes because inputs are specialized)
Why is the PPF downward sloping? - Answers The PPF is downward sloping because of opportunity cost.
If you want more of one good, you must give up another.
Absolute Advantage - Answers When 1 person/country can produce a good using LESS RESOURCES than
another.
ex: Julia can bake 10 cakes an hour and Taylor can only bake 5. Julia has the _________________.
Comparative Advantage - Answers When 1 person/country can produce a good at a LOWER
OPPORTUNITY COST than another.
Demand - Answers the usual inverse relationship between the price of a good and quantity of a good.
The less of the good you have, the more valuable it comes--> and vice versa.
* will always be decreasing
Law of Demand - Answers as price goes up, the quantity demanded falls (and vice versa).
This is why it is normally downward sloping.
Change in Quantity Demanded - Answers - change in the number of units we demand given a change in
price
- a movement ALONG the given demand curve
What is economics? - Answers the study of the allocation of limited resources across unlimited wants
and desires
What are the factors of production? How are each of them paid? - Answers 1. Land (rent)
2. Labor (wages)
3. Capital (interest)
4. Technology
5. Entrepreneurship
Land - Answers One of the three limited factors of production
it is a limited natural resource (rocks, dirt, water, trees, air, animals)
Labor - Answers One of the three limited factors of production
human resources (anything man-made from humans)
- workers, employees
- the biggest skill you will have in your life and you will continue to work on it your whole life
- you will trade this resource for things that you want/need
Capital - Answers One of the three limited factors of production
- NOT MONEY
-"stuff that makes stuff"
things that we put together to put other things together
-think of machines like robots that make cars
Entrepreneurship - Answers - the person that brings together resources (land, labor, capital) to produce
outputs
-this person must risk their resources for their business and may experience significant loss
Technology - Answers the recipe by which we bring together resources (land, labor, capital) to create
output.
- to produce the same goods you can always use new "recipes"
, Sunk Cost Fallacy - Answers the idea that some costs are essentially "sunk" and shouldn't be considered
when making a decision
examples: all you can eat buffet, semester parking, choosing to finish a boring movie because you
already paid for it
Positive Statement - Answers - what the world looks like
- based on facts and objective view, no value judgements
words to look for: "is", "are"
Normative Statement - Answers - what the would should be
-subjective, opinionated
words to look for: "should"
opportunity cost - Answers The thing or activity we give up to do or get something.
example: giving up getting more sleep by going to class at 8:30 to understand the content
Why is the PPF bowed out? - Answers The PPF is bowed out because of increasing opportunity cost
(which comes because inputs are specialized)
Why is the PPF downward sloping? - Answers The PPF is downward sloping because of opportunity cost.
If you want more of one good, you must give up another.
Absolute Advantage - Answers When 1 person/country can produce a good using LESS RESOURCES than
another.
ex: Julia can bake 10 cakes an hour and Taylor can only bake 5. Julia has the _________________.
Comparative Advantage - Answers When 1 person/country can produce a good at a LOWER
OPPORTUNITY COST than another.
Demand - Answers the usual inverse relationship between the price of a good and quantity of a good.
The less of the good you have, the more valuable it comes--> and vice versa.
* will always be decreasing
Law of Demand - Answers as price goes up, the quantity demanded falls (and vice versa).
This is why it is normally downward sloping.
Change in Quantity Demanded - Answers - change in the number of units we demand given a change in
price
- a movement ALONG the given demand curve
