ECN 211 EXAM 1 VERIFIED ACCURATE STUDY GUIDE
Economics - Answers -the study of how society manages its scarce resources
Macroeconomics - Answers -the study of economy-wide phenomena (ex. the federal
deficit, the rate of unemployment and policies to improve our standard of living)
Microeconomics - Answers -the study of how households and firms make decisions
and how they interact in markets
Mixed Economies - Answers -a system with free markets, but with some government
intervention (ex. U.S.)
Scarcity - Answers -there is not enough of something to go around for everyone to
have as much as they want of it at a zero price
Resources - Answers -are scarce for economies and households
Property Rights - Answers -the ability of an individual to own and exercise control over
scarce resources
Efficiency - Answers -society is getting the maximum benefits from its scarce resources
or the size of the economic pie
Equality - Answers -that benefits are distributed uniformly among society's members or
how the pie is divided into individual slices
Productivity - Answers -the amount of goods and services produced from each unit of
labor input
Incentives - Answers -something that induces a person to act or change a behavior
Cost - Answers -money, time, activities, etc. you give up
Opportunity Cost - Answers -whatever you give up to get something else
Marginal Benefit - Answers -the benefit/revenue of producing an item or of a choice
Marginal Thinking - Answers -if the benefits of your choice outway the cost of it
Marginal Cost - Answers -the cost of producing an item or of a choice
Trade-offs - Answers --"There ain't no such thing as a free lunch."
-To get more of one thing we have to give up something else
-Guns and butter (defense or social programs)
, Trade-off between equality and efficiency - Answers -taxes and welfare make us more
equal but reduce incentives for hard work, lowering total output
Trade-off between inflation and unemployment - Answers -an increase in the quantity
of money stimulates spending, which raises both prices and production
The increase in production requires more hiring, which reduces unemployment.
an increase in inflation tends to reduce unemployment, causing a trade-off between
inflation and unemployment.
Market Power - Answers -when an individual or group has the power to substantially
influence market prices
Market Failure - Answers -when the market fails to allocate resources efficiently
Market Economy - Answers -an economic system where interaction of households and
firms in markets determines the allocation of resources
Competitive Market - Answers -a market in which there are many buyers and sellers so
that each has a negligible impact on the market price
Trade - Answers -always benefits both parties involved because it allows each trader to
specialize in what he or she does best
"Invisible Hand" - Answers -the principle that self-interested market participants may
unknowingly maximize the welfare of society as a whole
Circular-Flow Diagram - Answers -a diagram of the economy that shows the flow of
goods and services, factors of production, and monetary payments between households
and firms
Factors of Production - Answers -include land, labor and capital
Households in a Circular-Flow Diagram - Answers --Sell the factors of production to
firms in the market for factors of production
-Receive wages, rent, and profit
-Use this money to buy goods and services from firms in the market for goods and
services
Firms in a Circular-Flow Diagram - Answers --Use revenue to pay for the factors of
production
-Hire/pay households wages
-Produce and sell goods and services for households in the market for goods and
services
Economics - Answers -the study of how society manages its scarce resources
Macroeconomics - Answers -the study of economy-wide phenomena (ex. the federal
deficit, the rate of unemployment and policies to improve our standard of living)
Microeconomics - Answers -the study of how households and firms make decisions
and how they interact in markets
Mixed Economies - Answers -a system with free markets, but with some government
intervention (ex. U.S.)
Scarcity - Answers -there is not enough of something to go around for everyone to
have as much as they want of it at a zero price
Resources - Answers -are scarce for economies and households
Property Rights - Answers -the ability of an individual to own and exercise control over
scarce resources
Efficiency - Answers -society is getting the maximum benefits from its scarce resources
or the size of the economic pie
Equality - Answers -that benefits are distributed uniformly among society's members or
how the pie is divided into individual slices
Productivity - Answers -the amount of goods and services produced from each unit of
labor input
Incentives - Answers -something that induces a person to act or change a behavior
Cost - Answers -money, time, activities, etc. you give up
Opportunity Cost - Answers -whatever you give up to get something else
Marginal Benefit - Answers -the benefit/revenue of producing an item or of a choice
Marginal Thinking - Answers -if the benefits of your choice outway the cost of it
Marginal Cost - Answers -the cost of producing an item or of a choice
Trade-offs - Answers --"There ain't no such thing as a free lunch."
-To get more of one thing we have to give up something else
-Guns and butter (defense or social programs)
, Trade-off between equality and efficiency - Answers -taxes and welfare make us more
equal but reduce incentives for hard work, lowering total output
Trade-off between inflation and unemployment - Answers -an increase in the quantity
of money stimulates spending, which raises both prices and production
The increase in production requires more hiring, which reduces unemployment.
an increase in inflation tends to reduce unemployment, causing a trade-off between
inflation and unemployment.
Market Power - Answers -when an individual or group has the power to substantially
influence market prices
Market Failure - Answers -when the market fails to allocate resources efficiently
Market Economy - Answers -an economic system where interaction of households and
firms in markets determines the allocation of resources
Competitive Market - Answers -a market in which there are many buyers and sellers so
that each has a negligible impact on the market price
Trade - Answers -always benefits both parties involved because it allows each trader to
specialize in what he or she does best
"Invisible Hand" - Answers -the principle that self-interested market participants may
unknowingly maximize the welfare of society as a whole
Circular-Flow Diagram - Answers -a diagram of the economy that shows the flow of
goods and services, factors of production, and monetary payments between households
and firms
Factors of Production - Answers -include land, labor and capital
Households in a Circular-Flow Diagram - Answers --Sell the factors of production to
firms in the market for factors of production
-Receive wages, rent, and profit
-Use this money to buy goods and services from firms in the market for goods and
services
Firms in a Circular-Flow Diagram - Answers --Use revenue to pay for the factors of
production
-Hire/pay households wages
-Produce and sell goods and services for households in the market for goods and
services
