ECON 1002 MICROECONOMICS EXAM 2
FINAL PAPER 2026 COMPLETE QUESTIONS
AND SOLUTIONS
◉ absolute advantage. Answer: can produce more of an output using
the same resources
◉ comparative advantage. Answer: the ability to produce a good at a
lower opportunity cost than another producer
whatever you are finding the opportunity cost of goes into the
denominator
◉ isocost line. Answer: identifies all combinations of capital and
labor the firm can hire for a given total cost (only includes points on
the line)
- all points on the line have the same cost
-any point above the isocost line will cost more (not possible)
◉ slope of the isocost line. Answer: -w/r
,◉ Equation to find cost at any given point. Answer: (wage x number
of workers) + (price x quantity)
◉ indifference curves. Answer: represents the same level of utility or
happiness based upon the combination of 2 goods
The further away from 0,0 the happier
◉ Marginal rate of substitution (MRS). Answer: the slope of the
indifference curve, and represents how much of a good someone is
willing to give up for one more unit of free time
◉ Why does MRS diminish (get flatter). Answer: as the consumer
requires more of a good their willingness to give up the other good
falls causing the MRS (slope) to decrease
◉ maximum level of consumption. Answer: c=wage (24- freetime)
this is the edge of the feasible frontier
◉ feasible set. Answer: all combinations a consumer can afford
above line: not possible
, below line: wasteful/inefficient
◉ marginal rate of transformation (MRT). Answer: slope of the
feasible set
◉ Why does wage=opportunity cost= MRT. Answer:
◉ What occurs when wage increases. Answer: the opportunity cost
of free time increases making it more expensive to take an hour off
(line becomes steeper)
steep line = day off cost more
◉ What happens to the function when you are gifted money.
Answer: the feasible set increases by the amount given
◉ income effect. Answer: the change in consumption resulting from
a change in real income
◉ substitution effect. Answer: The effect of opportunity cost
changing
if price falls you buy more
if price raises you buy less
FINAL PAPER 2026 COMPLETE QUESTIONS
AND SOLUTIONS
◉ absolute advantage. Answer: can produce more of an output using
the same resources
◉ comparative advantage. Answer: the ability to produce a good at a
lower opportunity cost than another producer
whatever you are finding the opportunity cost of goes into the
denominator
◉ isocost line. Answer: identifies all combinations of capital and
labor the firm can hire for a given total cost (only includes points on
the line)
- all points on the line have the same cost
-any point above the isocost line will cost more (not possible)
◉ slope of the isocost line. Answer: -w/r
,◉ Equation to find cost at any given point. Answer: (wage x number
of workers) + (price x quantity)
◉ indifference curves. Answer: represents the same level of utility or
happiness based upon the combination of 2 goods
The further away from 0,0 the happier
◉ Marginal rate of substitution (MRS). Answer: the slope of the
indifference curve, and represents how much of a good someone is
willing to give up for one more unit of free time
◉ Why does MRS diminish (get flatter). Answer: as the consumer
requires more of a good their willingness to give up the other good
falls causing the MRS (slope) to decrease
◉ maximum level of consumption. Answer: c=wage (24- freetime)
this is the edge of the feasible frontier
◉ feasible set. Answer: all combinations a consumer can afford
above line: not possible
, below line: wasteful/inefficient
◉ marginal rate of transformation (MRT). Answer: slope of the
feasible set
◉ Why does wage=opportunity cost= MRT. Answer:
◉ What occurs when wage increases. Answer: the opportunity cost
of free time increases making it more expensive to take an hour off
(line becomes steeper)
steep line = day off cost more
◉ What happens to the function when you are gifted money.
Answer: the feasible set increases by the amount given
◉ income effect. Answer: the change in consumption resulting from
a change in real income
◉ substitution effect. Answer: The effect of opportunity cost
changing
if price falls you buy more
if price raises you buy less
