ECON 111 Microeconomics Final Exam Questions
With Accurate Answers
Explicit Costs - ANSWER input costs that require an outlay of money by the firm
Implicit Costs - ANSWER input costs that do not require an outlay of money by the firm
Accounting profit - ANSWER total revenue minus total explicit cost
Economic Profit - ANSWER total revenue minus total cost, including both explicit and
implicit costs
Marginal Cost - ANSWER the cost of producing one more unit of a good
Marginal Benefit - ANSWER the additional benefit to a consumer from consuming one
more unit of a good or service
Optimal Quantity - ANSWER the quantity that generates the highest possible total profit
Sunk Cost - ANSWER a cost that has already been committed and cannot be recovered
Risk Aversion - ANSWER The tendency to prefer a sure gain of a moderate amount over
a riskier outcome, even if the riskier outcome might have a higher expected payoff.
Mental Accounting - ANSWER categorizing spending and saving decisions into
"accounts" mentally designated for specific consumption transactions, goals, or
situations
, Loss Aversion - ANSWER The strong tendency to regard losses as considerably more
important than gains of comparable magnitude—and, with this, a tendency to take steps
(including risky steps) to avoid possible loss.
Status Quo Bias - ANSWER tendency to do nothing when faced with making a decision
Utility - ANSWER Ability or capacity of a good or service to be useful and give
satisfaction to someone.
Consumption Bundle - ANSWER the collection of all the goods and services consumed
by that individual
Utility Function - ANSWER formula that assigns a level of utility to individual market
baskets
Marginal Utility - ANSWER an additional amount of satisfaction
Budget Constraint - ANSWER the limited amount of income available to consumers to
spend on goods and services
Budget Line - ANSWER A line that shows the different combinations of two products a
consumer can purchase with a specific money income, given the products' prices.
Optimal Consumption Bundle - ANSWER the consumption bundle that maximizes the
consumer's total utility given his or her budget constraint
Substitution Effect - ANSWER when consumers react to an increase in a good's price by
consuming less of that good and more of other goods
Income Effect - ANSWER the change in consumption resulting from a change in real
income
With Accurate Answers
Explicit Costs - ANSWER input costs that require an outlay of money by the firm
Implicit Costs - ANSWER input costs that do not require an outlay of money by the firm
Accounting profit - ANSWER total revenue minus total explicit cost
Economic Profit - ANSWER total revenue minus total cost, including both explicit and
implicit costs
Marginal Cost - ANSWER the cost of producing one more unit of a good
Marginal Benefit - ANSWER the additional benefit to a consumer from consuming one
more unit of a good or service
Optimal Quantity - ANSWER the quantity that generates the highest possible total profit
Sunk Cost - ANSWER a cost that has already been committed and cannot be recovered
Risk Aversion - ANSWER The tendency to prefer a sure gain of a moderate amount over
a riskier outcome, even if the riskier outcome might have a higher expected payoff.
Mental Accounting - ANSWER categorizing spending and saving decisions into
"accounts" mentally designated for specific consumption transactions, goals, or
situations
, Loss Aversion - ANSWER The strong tendency to regard losses as considerably more
important than gains of comparable magnitude—and, with this, a tendency to take steps
(including risky steps) to avoid possible loss.
Status Quo Bias - ANSWER tendency to do nothing when faced with making a decision
Utility - ANSWER Ability or capacity of a good or service to be useful and give
satisfaction to someone.
Consumption Bundle - ANSWER the collection of all the goods and services consumed
by that individual
Utility Function - ANSWER formula that assigns a level of utility to individual market
baskets
Marginal Utility - ANSWER an additional amount of satisfaction
Budget Constraint - ANSWER the limited amount of income available to consumers to
spend on goods and services
Budget Line - ANSWER A line that shows the different combinations of two products a
consumer can purchase with a specific money income, given the products' prices.
Optimal Consumption Bundle - ANSWER the consumption bundle that maximizes the
consumer's total utility given his or her budget constraint
Substitution Effect - ANSWER when consumers react to an increase in a good's price by
consuming less of that good and more of other goods
Income Effect - ANSWER the change in consumption resulting from a change in real
income
