EC 110 EXAM 1 ZIRLOTT QUESTIONS
WITH CORRECT ANSWERS 2026/2027
What is the study of economics? - CORRECT ANSWER -the study of how society manages its
scarce resources.
-how people decide what to buy, how much to work, save spend
-how firms decide how much to produce, how many workers to hire
-how society decides how to divide its resources between national defense, consumer goods,
protecting the environment, etc
Microeconomics - CORRECT ANSWER -the study of how households and firms make decisions
and how they interact in markets
Macroeconomics - CORRECT ANSWER -the study of economy-wide phenomena, including
inflation, unemployment, and economic growth
Equality (equity) - CORRECT ANSWER -when prosperity is distributed uniformly among society's
members (efficiency vs equality)
Scarcity - CORRECT ANSWER -the limited nature of society's resources
Efficiency - CORRECT ANSWER -when society gets the most from its scarce resources (efficiency
vs equality)
Tradeoffs - CORRECT ANSWER -efficiency vs equality. example: to achieve greater equality, could
redistribute income from wealthy to poor, but this reduces incentive to work and produce,
shrinks the size of the economic "pie."
, Opportunity Costs - CORRECT ANSWER -whatever must be given up to obtain something.
Comparing costs and benefits of alternative choices, relevant cost for decision making.
Measured at the highest valued alternative given up.
example: The opportunity cost of going to college for a year is not just the tuition, books, fees
but also the foregone wages
Rationality - CORRECT ANSWER -rational people systematically and purposefully do the best
they can to achieve their objectives.
Thinking at the Margin - CORRECT ANSWER -make decisions by evaluating costs and benefits of
marginal changes - incremental adjustments to an existing plan. Make decisions by comparing
marginal benefits and marginal costs.
*A rational decision maker takes an action if and only if the marginal benefit of the action
exceeds the marginal cost.
Benefits of Trade - CORRECT ANSWER -people can specialize in producing one good or service
and exchange it for other goods. Trade allows countries to specialize in what they do best and to
enjoy a greater variety of goods and services.
Market - CORRECT ANSWER -a group of buyers and sellers. "Organize economic activity" means
determining: what goods to produce, how to produce them, how much of each to produce, who
gets them.
Market Economy - CORRECT ANSWER -allocates resources through the decisions of many
households and firms as they interact in markets.
The Invisible Hand - CORRECT ANSWER -works through the price system: interaction of buyers
and sellers determines price, each price reflects the good's value to buyers and the cost of
producing the good, prices guide self-interested households and firms to make decisions that
maximize society's economic well-being.
WITH CORRECT ANSWERS 2026/2027
What is the study of economics? - CORRECT ANSWER -the study of how society manages its
scarce resources.
-how people decide what to buy, how much to work, save spend
-how firms decide how much to produce, how many workers to hire
-how society decides how to divide its resources between national defense, consumer goods,
protecting the environment, etc
Microeconomics - CORRECT ANSWER -the study of how households and firms make decisions
and how they interact in markets
Macroeconomics - CORRECT ANSWER -the study of economy-wide phenomena, including
inflation, unemployment, and economic growth
Equality (equity) - CORRECT ANSWER -when prosperity is distributed uniformly among society's
members (efficiency vs equality)
Scarcity - CORRECT ANSWER -the limited nature of society's resources
Efficiency - CORRECT ANSWER -when society gets the most from its scarce resources (efficiency
vs equality)
Tradeoffs - CORRECT ANSWER -efficiency vs equality. example: to achieve greater equality, could
redistribute income from wealthy to poor, but this reduces incentive to work and produce,
shrinks the size of the economic "pie."
, Opportunity Costs - CORRECT ANSWER -whatever must be given up to obtain something.
Comparing costs and benefits of alternative choices, relevant cost for decision making.
Measured at the highest valued alternative given up.
example: The opportunity cost of going to college for a year is not just the tuition, books, fees
but also the foregone wages
Rationality - CORRECT ANSWER -rational people systematically and purposefully do the best
they can to achieve their objectives.
Thinking at the Margin - CORRECT ANSWER -make decisions by evaluating costs and benefits of
marginal changes - incremental adjustments to an existing plan. Make decisions by comparing
marginal benefits and marginal costs.
*A rational decision maker takes an action if and only if the marginal benefit of the action
exceeds the marginal cost.
Benefits of Trade - CORRECT ANSWER -people can specialize in producing one good or service
and exchange it for other goods. Trade allows countries to specialize in what they do best and to
enjoy a greater variety of goods and services.
Market - CORRECT ANSWER -a group of buyers and sellers. "Organize economic activity" means
determining: what goods to produce, how to produce them, how much of each to produce, who
gets them.
Market Economy - CORRECT ANSWER -allocates resources through the decisions of many
households and firms as they interact in markets.
The Invisible Hand - CORRECT ANSWER -works through the price system: interaction of buyers
and sellers determines price, each price reflects the good's value to buyers and the cost of
producing the good, prices guide self-interested households and firms to make decisions that
maximize society's economic well-being.
