2026/2027 ECON 202 CHAPTERS 1–4 – EXAM REVIEW, STUDY GUIDE &
PRACTICE QUESTIONS WITH ANSWERS
scarcity - Correct answer✅✅ a situation in which unlimited wants exceed the limited resources
available to fulfill those wants
economics - Correct answer✅✅ the study of the choices people make to attain their goals, given their
scarce resources
economic model - Correct answer✅✅ a simplified version of reality used to analyze real-world
economic situations
market - Correct answer✅✅ a group of buyers and sellers of a good or service and the institution or
arrangement by which they come together to trade
people are rational, people respond to incentives, optimal decisions are made at the margin - Correct
answer✅✅ What are the 3 key economic ideas?
marginal analysis - Correct answer✅✅ analysis that involves comparing marginal benefits and
marginal costs
trade-off - Correct answer✅✅ the idea that, because of scarcity, producing more of one good or
service means producing less of another good or service
opportunity cost - Correct answer✅✅ the highest-valued alternative that must be given up to engage
in an activity
what goods and services will be produced? how will the goods and services be produced? who will
receive the goods and services produced? - Correct answer✅✅ what are the 3 fundamental questions
that society must make when making choices?
, centrally planned economy - Correct answer✅✅ an economy in which the government decides how
economic resources will be allocated
market economy - Correct answer✅✅ an economy in which the decisions of households and firms
interacting in markets allocate economic resources
mixed economy - Correct answer✅✅ 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 - Correct answer✅✅ a situation in which a good or service is produced at the
lowest possible cost
allocative efficiency - Correct answer✅✅ a state of the economy in which production is in accordance
with consumer preferences
competition - Correct answer✅✅ How is productive efficiency achieved?
competition and voluntary exchange - Correct answer✅✅ How is allocative efficiency achieved?
voluntary exchange - Correct answer✅✅ a situation that occurs in markets when both the buyer and
seller of a product are made better off by the transaction
economic variable - Correct answer✅✅ something measurable that can have different values, such as
the incomes of doctors
positive analysis - Correct answer✅✅ analysis concerned with what is
normative analysis - Correct answer✅✅ analysis concerned with what ought to be
microeconomics - Correct answer✅✅ the study of how households and firms make choices, how they
interact in markets, and how the government attempts to influence their choices
PRACTICE QUESTIONS WITH ANSWERS
scarcity - Correct answer✅✅ a situation in which unlimited wants exceed the limited resources
available to fulfill those wants
economics - Correct answer✅✅ the study of the choices people make to attain their goals, given their
scarce resources
economic model - Correct answer✅✅ a simplified version of reality used to analyze real-world
economic situations
market - Correct answer✅✅ a group of buyers and sellers of a good or service and the institution or
arrangement by which they come together to trade
people are rational, people respond to incentives, optimal decisions are made at the margin - Correct
answer✅✅ What are the 3 key economic ideas?
marginal analysis - Correct answer✅✅ analysis that involves comparing marginal benefits and
marginal costs
trade-off - Correct answer✅✅ the idea that, because of scarcity, producing more of one good or
service means producing less of another good or service
opportunity cost - Correct answer✅✅ the highest-valued alternative that must be given up to engage
in an activity
what goods and services will be produced? how will the goods and services be produced? who will
receive the goods and services produced? - Correct answer✅✅ what are the 3 fundamental questions
that society must make when making choices?
, centrally planned economy - Correct answer✅✅ an economy in which the government decides how
economic resources will be allocated
market economy - Correct answer✅✅ an economy in which the decisions of households and firms
interacting in markets allocate economic resources
mixed economy - Correct answer✅✅ 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 - Correct answer✅✅ a situation in which a good or service is produced at the
lowest possible cost
allocative efficiency - Correct answer✅✅ a state of the economy in which production is in accordance
with consumer preferences
competition - Correct answer✅✅ How is productive efficiency achieved?
competition and voluntary exchange - Correct answer✅✅ How is allocative efficiency achieved?
voluntary exchange - Correct answer✅✅ a situation that occurs in markets when both the buyer and
seller of a product are made better off by the transaction
economic variable - Correct answer✅✅ something measurable that can have different values, such as
the incomes of doctors
positive analysis - Correct answer✅✅ analysis concerned with what is
normative analysis - Correct answer✅✅ analysis concerned with what ought to be
microeconomics - Correct answer✅✅ the study of how households and firms make choices, how they
interact in markets, and how the government attempts to influence their choices
