Econ 104 Exam 1 study guide
Distinction-Level Exam Answers
Scarcity - unlimited wants exceed the limited resources available to fulfill those wants
Economics - The study of the choices people make to attain their goals, given their scarce
resources
opportunity cost - The highest-valued, next-best alternative that must be sacrificed to obtain
something or to satisfy a want or to engage in an activity
Rationality - Never intentionally harm themselves or make themselves worse off
Incentives - Rewards or punishments for engaging in a particular activity
Marginal Thinking - Keep doing an activity if MB > MC
1.) People are rational
2.) People respond to economic incentives
3.) Optimal decisions are made at the margin - Individual behavior, assumptions:
Models - Simplified representations of the real world used as the basis for predictions or
explanations
Ceteris Paribus - "all other things equal"
, Goal: Focus on what is relevant to the problem at hand
positive economics - Can be tested true or false
"If A, then B,"
normative economics - opinion
Statement that can't be proven true or false
micro - Small
The study of decision making undertaken by individuals (or households) and by firms
Macro - Big
The study of decision making undertake by individuals
Land, Labor, physical capital, human capital, entrepreneurship - production and inputs (listed)
What to make? How to make it? Who to make it for? - Three questions for an economic system?
Market Planned Economy - Decentralized decision making, supply and demand determine most
outcomes
centrally planned economy - Central government makes all output, pricing, and allocation
decisions
Distinction-Level Exam Answers
Scarcity - unlimited wants exceed the limited resources available to fulfill those wants
Economics - The study of the choices people make to attain their goals, given their scarce
resources
opportunity cost - The highest-valued, next-best alternative that must be sacrificed to obtain
something or to satisfy a want or to engage in an activity
Rationality - Never intentionally harm themselves or make themselves worse off
Incentives - Rewards or punishments for engaging in a particular activity
Marginal Thinking - Keep doing an activity if MB > MC
1.) People are rational
2.) People respond to economic incentives
3.) Optimal decisions are made at the margin - Individual behavior, assumptions:
Models - Simplified representations of the real world used as the basis for predictions or
explanations
Ceteris Paribus - "all other things equal"
, Goal: Focus on what is relevant to the problem at hand
positive economics - Can be tested true or false
"If A, then B,"
normative economics - opinion
Statement that can't be proven true or false
micro - Small
The study of decision making undertaken by individuals (or households) and by firms
Macro - Big
The study of decision making undertake by individuals
Land, Labor, physical capital, human capital, entrepreneurship - production and inputs (listed)
What to make? How to make it? Who to make it for? - Three questions for an economic system?
Market Planned Economy - Decentralized decision making, supply and demand determine most
outcomes
centrally planned economy - Central government makes all output, pricing, and allocation
decisions
