Econ 202
Econ 202 Exam 1 Study Questions
with Correct Answers 2026
scarcity -Correct Answer ✔-a situation in which unlimited wants exceeds the limited
resources available
economics -Correct Answer ✔-the study of the choices people make to attain their
goals, given their scarce resources
economic model -Correct Answer ✔-a simplified version of reality used to analyze real-
world economic situations
market -Correct Answer ✔-a group of buyers and sellers of a good or service and the
institution or arrangement by which they come together to trade
What are the three key economic ideas? -Correct Answer ✔-1.People are rational
2.People respond to economic incentives
3.Optimal decisions are made at the margin
Explain the idea people are rational: -Correct Answer ✔--Economist assume consumers
and firms use all available information as they act to achieve their goals.
-these people wight the benefits and costs and only proceed with actions if the benefits
outweigh the costs
Explain the idea people respond to economic incentives: -Correct Answer ✔--humans
act for a variety of motives
-EX; its less costly for a bank to deal with bank robbery than to hire additional security
measures
Explain the idea optimal decisions are made at the margin: -Correct Answer ✔--margin
means extra or additional
-it is to continue any activity up to the point where the marginal benefit (MB) equals the
marginal cost (MC)
thus MB=MC
marginal analysis -Correct Answer ✔-analysis that involves comparing marginal benefits
and marginal costs
trade-offs -Correct Answer ✔-the idea that because of scarcity, producing more of one
good or service means producing less of another
opportunity cost -Correct Answer ✔-the highest valued alternative that must be given up
to engage in an activity
Econ 202
, Econ 202
What are the three fundamental questions? -Correct Answer ✔-1. What goods and
services will be produced?
-based off the choices of the consumers
2. How will the goods and services be produced?
-what are the opportunity costs of more labor V. more machinery
3.Who will receive these goods and services?
- the consumers with a higher income can purchase more
centrally planned economy -Correct Answer ✔-an economy in which the gov't decides
how the economic resources will be allocated
market economy -Correct Answer ✔-an economy in which the decisions of the
households and firms interacting in markets allocates the economic resources
mixed economy -Correct Answer ✔--an economy in which most economic decisions
result from the interaction of buyers in the markets but in which the gov't plays a
significant role in the allocation of resources
-The US is a mixed economy
productive efficiency -Correct Answer ✔-a situations in which a good or service is
produced at the lowest possible cost
allocations efficiency -Correct Answer ✔-a state in the economy in which production is
in accordance to the consumers preferences
voluntary exchange -Correct Answer ✔-a situation that occurs in the markets when both
the buyer and the seller of a product are made better off by the transaction
equity -Correct Answer ✔-a fair distribution of economic benefits
How is an economic model (economic theory) developed? -Correct Answer ✔-1. Decide
on the assumptions to use in the developing of the model
2. Formulate a testable hypothesis
3. Use economic data to test the hypothesis
4. Revise the model if it fails to explain the economic data
5. Retain the revised model to help answer similar economic questions in the future
economic variable -Correct Answer ✔-something measurable that can have different
values such as the wages of software programmers
positive analysis -Correct Answer ✔-analysis concerned with what is
normative analysis -Correct Answer ✔-analysis concerned with what ought to be
Econ 202
Econ 202 Exam 1 Study Questions
with Correct Answers 2026
scarcity -Correct Answer ✔-a situation in which unlimited wants exceeds the limited
resources available
economics -Correct Answer ✔-the study of the choices people make to attain their
goals, given their scarce resources
economic model -Correct Answer ✔-a simplified version of reality used to analyze real-
world economic situations
market -Correct Answer ✔-a group of buyers and sellers of a good or service and the
institution or arrangement by which they come together to trade
What are the three key economic ideas? -Correct Answer ✔-1.People are rational
2.People respond to economic incentives
3.Optimal decisions are made at the margin
Explain the idea people are rational: -Correct Answer ✔--Economist assume consumers
and firms use all available information as they act to achieve their goals.
-these people wight the benefits and costs and only proceed with actions if the benefits
outweigh the costs
Explain the idea people respond to economic incentives: -Correct Answer ✔--humans
act for a variety of motives
-EX; its less costly for a bank to deal with bank robbery than to hire additional security
measures
Explain the idea optimal decisions are made at the margin: -Correct Answer ✔--margin
means extra or additional
-it is to continue any activity up to the point where the marginal benefit (MB) equals the
marginal cost (MC)
thus MB=MC
marginal analysis -Correct Answer ✔-analysis that involves comparing marginal benefits
and marginal costs
trade-offs -Correct Answer ✔-the idea that because of scarcity, producing more of one
good or service means producing less of another
opportunity cost -Correct Answer ✔-the highest valued alternative that must be given up
to engage in an activity
Econ 202
, Econ 202
What are the three fundamental questions? -Correct Answer ✔-1. What goods and
services will be produced?
-based off the choices of the consumers
2. How will the goods and services be produced?
-what are the opportunity costs of more labor V. more machinery
3.Who will receive these goods and services?
- the consumers with a higher income can purchase more
centrally planned economy -Correct Answer ✔-an economy in which the gov't decides
how the economic resources will be allocated
market economy -Correct Answer ✔-an economy in which the decisions of the
households and firms interacting in markets allocates the economic resources
mixed economy -Correct Answer ✔--an economy in which most economic decisions
result from the interaction of buyers in the markets but in which the gov't plays a
significant role in the allocation of resources
-The US is a mixed economy
productive efficiency -Correct Answer ✔-a situations in which a good or service is
produced at the lowest possible cost
allocations efficiency -Correct Answer ✔-a state in the economy in which production is
in accordance to the consumers preferences
voluntary exchange -Correct Answer ✔-a situation that occurs in the markets when both
the buyer and the seller of a product are made better off by the transaction
equity -Correct Answer ✔-a fair distribution of economic benefits
How is an economic model (economic theory) developed? -Correct Answer ✔-1. Decide
on the assumptions to use in the developing of the model
2. Formulate a testable hypothesis
3. Use economic data to test the hypothesis
4. Revise the model if it fails to explain the economic data
5. Retain the revised model to help answer similar economic questions in the future
economic variable -Correct Answer ✔-something measurable that can have different
values such as the wages of software programmers
positive analysis -Correct Answer ✔-analysis concerned with what is
normative analysis -Correct Answer ✔-analysis concerned with what ought to be
Econ 202
