ECON 251- EXAM 1 QUESTIONS AND ANSWERS
1. economics: Social science that studies the choices we make as we cope with scarcity and the
incentives that influence and reconcile our choices
2. it creates theories and models that we'd like to test: How does economics work
as a social science
3. all else equal: What does ceteris paribus mean
4. microeconomics deals with individual consumers, households,
firms, and government influences: How is microeconomics ditterent from
macroeconomics
5. normative = judgement and positive = fact: What is the ditterence between
normative and positive
6. scarcity: available resources are insuflcient to satisfy wants
7. 1. Land (natural resources) 2. Labor 3. Capital 4. Entrepreneurship:
What are the four economic resources
8. incentives: Rewards or penalties that encourage or discourage an action
9. do it: What should you do if benefits > costs
10. Don't do it: What should you do if benefits < costs
11. opportunity cost: value of the best alternative
12. monetary expenses: What are explicit costs
13. value of forgone alternatives: What are implicit costs
14. sunk cost: a cost that has already been incurred and that cannot be recovered
15. because if the cost of your time waiting for the free item is more
than the cost of the free item then you lose money: How do free goods have
an economic cost
16. need cost and benefit of each individual unit: What if a decision is not a lump
sum decision
17. marginal benefit: benefit of one additional unit of a good or activity
18. marginal cost: cost of one additional unit of a good or activity
19. if MB > MC then you increase the quantity. if MB < MC then you
decrease the quantity. if MB = MC there is no additional advantage to
changing quantity: How do you use marginal benefit and marginal cost to determine how
1/
16
,you should change the quantity of something
20. as quantity increases: When does marginal benefit generally decrease
21. as quantity increases: when does marginal cost generally increase
22. ****study graphs: ****study graphs
23. production of a good can be achieved in less time. More can be
produced in the same amount of time: What is an absolute advantage
2/
16
, 24. cost of production is lowest: What is a comparative advantage
25. by looking for who has the lowest marginal cost: How can you determine
who has a comparative advantage
26. • If one person has comparative advantage in one task, the
other person must have comparative advantage in the other task
• It is impossible for one person to have comparative advantage in
everything-
: What are the rules for comparative advantage
27. production possibility frontier: Graph of maximum output that can be produced by an
individual or an economy
28. - Negative slope
- Magnitude of slope=marginal cost of good "x": What are some characteristics
of a PPF for one person
29. whoever has the flatter slope has the comparative advantage:
How can you determine who has a comparative advantage when looking at a PPF
30. you would combine everyone's production before graphing: How do
you create an economy wide PPF
31. - Negative slope
- Magnitude of slope = MC of "x"
- MC of "x" increases so slope is steeper as "x" increases
- slope is not constant: What are some characteristics of an economy wide PPF
32. productive efficiency: producing at lowest cost(every point on PPF satisfies this)
33. allocative efficiency: using resources where they have the highest value
34. demand and supply: What is allocative eflciency dependent on
35. • Natural resource discovery
• Population growth
• Change in productivity of labor
• Technological change
• Capital accumulation: What are some factors that cause shifts in PPF
36. demand: maximum quantity a consumer is willing and able to purchase at various prices
37. law of demand: price and quantity demanded are inversely related - Higher prices (P)
reduce quantity demanded (Qd) - Lower prices increase quantity demanded
3/
16
1. economics: Social science that studies the choices we make as we cope with scarcity and the
incentives that influence and reconcile our choices
2. it creates theories and models that we'd like to test: How does economics work
as a social science
3. all else equal: What does ceteris paribus mean
4. microeconomics deals with individual consumers, households,
firms, and government influences: How is microeconomics ditterent from
macroeconomics
5. normative = judgement and positive = fact: What is the ditterence between
normative and positive
6. scarcity: available resources are insuflcient to satisfy wants
7. 1. Land (natural resources) 2. Labor 3. Capital 4. Entrepreneurship:
What are the four economic resources
8. incentives: Rewards or penalties that encourage or discourage an action
9. do it: What should you do if benefits > costs
10. Don't do it: What should you do if benefits < costs
11. opportunity cost: value of the best alternative
12. monetary expenses: What are explicit costs
13. value of forgone alternatives: What are implicit costs
14. sunk cost: a cost that has already been incurred and that cannot be recovered
15. because if the cost of your time waiting for the free item is more
than the cost of the free item then you lose money: How do free goods have
an economic cost
16. need cost and benefit of each individual unit: What if a decision is not a lump
sum decision
17. marginal benefit: benefit of one additional unit of a good or activity
18. marginal cost: cost of one additional unit of a good or activity
19. if MB > MC then you increase the quantity. if MB < MC then you
decrease the quantity. if MB = MC there is no additional advantage to
changing quantity: How do you use marginal benefit and marginal cost to determine how
1/
16
,you should change the quantity of something
20. as quantity increases: When does marginal benefit generally decrease
21. as quantity increases: when does marginal cost generally increase
22. ****study graphs: ****study graphs
23. production of a good can be achieved in less time. More can be
produced in the same amount of time: What is an absolute advantage
2/
16
, 24. cost of production is lowest: What is a comparative advantage
25. by looking for who has the lowest marginal cost: How can you determine
who has a comparative advantage
26. • If one person has comparative advantage in one task, the
other person must have comparative advantage in the other task
• It is impossible for one person to have comparative advantage in
everything-
: What are the rules for comparative advantage
27. production possibility frontier: Graph of maximum output that can be produced by an
individual or an economy
28. - Negative slope
- Magnitude of slope=marginal cost of good "x": What are some characteristics
of a PPF for one person
29. whoever has the flatter slope has the comparative advantage:
How can you determine who has a comparative advantage when looking at a PPF
30. you would combine everyone's production before graphing: How do
you create an economy wide PPF
31. - Negative slope
- Magnitude of slope = MC of "x"
- MC of "x" increases so slope is steeper as "x" increases
- slope is not constant: What are some characteristics of an economy wide PPF
32. productive efficiency: producing at lowest cost(every point on PPF satisfies this)
33. allocative efficiency: using resources where they have the highest value
34. demand and supply: What is allocative eflciency dependent on
35. • Natural resource discovery
• Population growth
• Change in productivity of labor
• Technological change
• Capital accumulation: What are some factors that cause shifts in PPF
36. demand: maximum quantity a consumer is willing and able to purchase at various prices
37. law of demand: price and quantity demanded are inversely related - Higher prices (P)
reduce quantity demanded (Qd) - Lower prices increase quantity demanded
3/
16
