PRINCIPLES OF ECONOMICS A STREAMLINED
APPROACH COMPREHENSIVE STUDY GUIDE
2026 MICROECONOMICS AND
MACROECONOMICS CORE CONCEPTS
◉ People respond to. Answer: Economic incentive, Exploiting other
opportunities to make themselves better off.
◉ An Optimal Decision is to Answer: continue until MB=MC.
marginal benefit equals marginal cost.
◉ Trade-Offs Answer: involve opportunity cost, the value of the best
alternative given up
◉ Productive efficiency: Answer: Productive efficiency: A situation
in which a good or service is produced at the lowest possible cost
◉ Allocative efficiency Answer: Allocative efficiency: A situation
where every good or service is produced up to the point where the
last unit provides a marginal benefit to society equal to the marginal
cost of producing it.
,◉ Economic Equity Answer: Equity The fair distribution of economic
benefits. There is often a trade-off between efficiency and equity,
governments face this trade off.
◉ a production possibilities frontier (PPF) Answer: A production
possibilities frontier (PPF) is a curve showing the maximum
attainable combinations of two products that may be produced with
available resources (e.g. workers, materials, machinery...) and
technology.
◉ Absolute advantage: Answer: Absolute advantage: The ability of
an individual, a firm, or a country to produce more of a good or
service than competitors, using the same amount of resources.
◉ Comparative advantage: Answer: Comparative advantage: The
ability of an individual, a firm, or a country to produce a good or
service at a lower opportunity cost than competitors.
◉ People are rational
respond to economic incentive.
Optimal decisions are made at the margin Answer: People choose an
option only if benefit outweighs cost. Less cost is an incentive,
, ◉ marginal analysis Answer: analysis of marginal cost vs marginal
benefit. Optimal decision is to continue an economic activity until
MC=MB
◉ centrally planned economy Answer: an economy in which the
government decides how economic resources will be allocated
◉ market economy Answer: the decisions of housholds, firms, and
individuals interacting in the market allocates resources.
◉ mixed economy Answer: an economy in which most economic
decisions are from the interaction of buyers and sellers in a market
but in which the government plays a significant roll in the allocation
of resources.
◉ Voluntary Exchange Answer: When both the buyer and seller have
incentive to exchange because each will be better off.
◉ positive analysis Answer: an analysis concerned with what is, a
direct objective observation. measures the costs and benefits of
different courses of action.
◉ normative analysis Answer: analysis concerned with what ought
to be
APPROACH COMPREHENSIVE STUDY GUIDE
2026 MICROECONOMICS AND
MACROECONOMICS CORE CONCEPTS
◉ People respond to. Answer: Economic incentive, Exploiting other
opportunities to make themselves better off.
◉ An Optimal Decision is to Answer: continue until MB=MC.
marginal benefit equals marginal cost.
◉ Trade-Offs Answer: involve opportunity cost, the value of the best
alternative given up
◉ Productive efficiency: Answer: Productive efficiency: A situation
in which a good or service is produced at the lowest possible cost
◉ Allocative efficiency Answer: Allocative efficiency: A situation
where every good or service is produced up to the point where the
last unit provides a marginal benefit to society equal to the marginal
cost of producing it.
,◉ Economic Equity Answer: Equity The fair distribution of economic
benefits. There is often a trade-off between efficiency and equity,
governments face this trade off.
◉ a production possibilities frontier (PPF) Answer: A production
possibilities frontier (PPF) is a curve showing the maximum
attainable combinations of two products that may be produced with
available resources (e.g. workers, materials, machinery...) and
technology.
◉ Absolute advantage: Answer: Absolute advantage: The ability of
an individual, a firm, or a country to produce more of a good or
service than competitors, using the same amount of resources.
◉ Comparative advantage: Answer: Comparative advantage: The
ability of an individual, a firm, or a country to produce a good or
service at a lower opportunity cost than competitors.
◉ People are rational
respond to economic incentive.
Optimal decisions are made at the margin Answer: People choose an
option only if benefit outweighs cost. Less cost is an incentive,
, ◉ marginal analysis Answer: analysis of marginal cost vs marginal
benefit. Optimal decision is to continue an economic activity until
MC=MB
◉ centrally planned economy Answer: an economy in which the
government decides how economic resources will be allocated
◉ market economy Answer: the decisions of housholds, firms, and
individuals interacting in the market allocates resources.
◉ mixed economy Answer: an economy in which most economic
decisions are from the interaction of buyers and sellers in a market
but in which the government plays a significant roll in the allocation
of resources.
◉ Voluntary Exchange Answer: When both the buyer and seller have
incentive to exchange because each will be better off.
◉ positive analysis Answer: an analysis concerned with what is, a
direct objective observation. measures the costs and benefits of
different courses of action.
◉ normative analysis Answer: analysis concerned with what ought
to be
