ECONOMICS 110 EXAM 1 STUDY GUIDE
(CHAPTERS 1-4) EXAM QUESTIONS AND
ANSWERS 100% PASS 2026/2027
Scarcity - ANS The limited nature of society's resources
Economics - ANS The study of how society manages its scarce resources
Efficiency - ANS When society gets the most from its scarce resources
Equality - ANS When prosperity is distributed uniformly among society's members
Tradeoff - ANS To achieve greater equality, could redistribute income from wealthy to poor,
but this reduces the incentive to work
Opportunity Cost - ANS Whatever must be given up to obtain an item
Rational People - ANS systematically and purposefully do the best they can to achieve their
objectives
Marginal Changes - ANS Incremental adjustments to an existing plan
@2026 ALLRIGHTS RESERVED 1
, Incentive - ANS Something that induces a person to act, i.e. the prospect of a reward or
punishment (rational people respond to these)
Market - ANS A group of buyers and sellers
Market Economy - ANS Allocates resources through the decisions of many households and
firms as they interact in markets
Invisible Hand - ANS Made by Adam Smith; works through the price system; interaction of
buyers and sellers determines prices; each price reflects the good's value to buyers and the cost
of producing the good; prices guide self-interested households
Market Failure - ANS When the market fails to allocate society's resources efficiently
Externalities - ANS When the production or consumption of a good affects bystanders
Market Power - ANS A single buyer or seller has substantial influence on market price
Productivity - ANS The amount of goods and services produced per unit of labor
Inflation - ANS Increases in the general level of prices
Microeconomics - ANS The study of how households and firms make decisions and how they
interact in markets
@2026 ALLRIGHTS RESERVED 2
(CHAPTERS 1-4) EXAM QUESTIONS AND
ANSWERS 100% PASS 2026/2027
Scarcity - ANS The limited nature of society's resources
Economics - ANS The study of how society manages its scarce resources
Efficiency - ANS When society gets the most from its scarce resources
Equality - ANS When prosperity is distributed uniformly among society's members
Tradeoff - ANS To achieve greater equality, could redistribute income from wealthy to poor,
but this reduces the incentive to work
Opportunity Cost - ANS Whatever must be given up to obtain an item
Rational People - ANS systematically and purposefully do the best they can to achieve their
objectives
Marginal Changes - ANS Incremental adjustments to an existing plan
@2026 ALLRIGHTS RESERVED 1
, Incentive - ANS Something that induces a person to act, i.e. the prospect of a reward or
punishment (rational people respond to these)
Market - ANS A group of buyers and sellers
Market Economy - ANS Allocates resources through the decisions of many households and
firms as they interact in markets
Invisible Hand - ANS Made by Adam Smith; works through the price system; interaction of
buyers and sellers determines prices; each price reflects the good's value to buyers and the cost
of producing the good; prices guide self-interested households
Market Failure - ANS When the market fails to allocate society's resources efficiently
Externalities - ANS When the production or consumption of a good affects bystanders
Market Power - ANS A single buyer or seller has substantial influence on market price
Productivity - ANS The amount of goods and services produced per unit of labor
Inflation - ANS Increases in the general level of prices
Microeconomics - ANS The study of how households and firms make decisions and how they
interact in markets
@2026 ALLRIGHTS RESERVED 2
