UA EC 110 TEST 1 QUESTIONS WITH
CORRECT ANSWERS 2026/2027
The study of economics - CORRECT ANSWER -the study of how society manages its scarce
resources
scarcity - CORRECT ANSWER -the limited nature of society's resources
Efficiency - CORRECT ANSWER -when society gets the most from its scarce resources
Equality - CORRECT ANSWER -when prosperity is distributed uniformly among society's
members
Tradeoff - CORRECT ANSWER -To achieve greater equality, could redistribute income form
wealthy to poor. But this reduces incentive to work and produce, shrinks the size of the
economic "pie"
Opportunity cost - CORRECT ANSWER -Whatever must be given up to obtain it
Market - CORRECT ANSWER -a group of buyers and sellers (need not be in a single location)
Market economy - CORRECT ANSWER -allocates resources through the decisions of many
households and firms as they interact in markets
Market failure - CORRECT ANSWER -When the market fails to allocate society's resources
efficiently
, Model - CORRECT ANSWER -A highly simplified representation of a more complicated reality.
Economists use these to study economic issues.
Circular-Flow Diagram - CORRECT ANSWER -a visual model of the economy, shows how dollars
flow through markets among households and firms.
Circular-Flow Diagram "actors" - CORRECT ANSWER -households and firms
Circular-Flow Diagram "markets" - CORRECT ANSWER -the market for goods and services, the
market for "factors of production"
Factors of production - CORRECT ANSWER -the resources the economy uses to produce goods
and services, including: labor, land, capital (buildings and machines used in production),
entrepreneurship
Households - CORRECT ANSWER -Own the factors of production, sell/rent them to firms for
income. Buy and consume goods and services
Firms - CORRECT ANSWER -Buy/hire factors of production, use them to produce goods and
services. Sell goods and services.
Production Possibilites Frontier (PPF) - CORRECT ANSWER -a graph that shows the combinations
of two goods the economy can possibly produce given the available resources and the available
technology
Straight line - CORRECT ANSWER -If opportunity cost remains constant, PPF is a __________.
Essentially, the same resources are equally useful for producing in either industry.
CORRECT ANSWERS 2026/2027
The study of economics - CORRECT ANSWER -the study of how society manages its scarce
resources
scarcity - CORRECT ANSWER -the limited nature of society's resources
Efficiency - CORRECT ANSWER -when society gets the most from its scarce resources
Equality - CORRECT ANSWER -when prosperity is distributed uniformly among society's
members
Tradeoff - CORRECT ANSWER -To achieve greater equality, could redistribute income form
wealthy to poor. But this reduces incentive to work and produce, shrinks the size of the
economic "pie"
Opportunity cost - CORRECT ANSWER -Whatever must be given up to obtain it
Market - CORRECT ANSWER -a group of buyers and sellers (need not be in a single location)
Market economy - CORRECT ANSWER -allocates resources through the decisions of many
households and firms as they interact in markets
Market failure - CORRECT ANSWER -When the market fails to allocate society's resources
efficiently
, Model - CORRECT ANSWER -A highly simplified representation of a more complicated reality.
Economists use these to study economic issues.
Circular-Flow Diagram - CORRECT ANSWER -a visual model of the economy, shows how dollars
flow through markets among households and firms.
Circular-Flow Diagram "actors" - CORRECT ANSWER -households and firms
Circular-Flow Diagram "markets" - CORRECT ANSWER -the market for goods and services, the
market for "factors of production"
Factors of production - CORRECT ANSWER -the resources the economy uses to produce goods
and services, including: labor, land, capital (buildings and machines used in production),
entrepreneurship
Households - CORRECT ANSWER -Own the factors of production, sell/rent them to firms for
income. Buy and consume goods and services
Firms - CORRECT ANSWER -Buy/hire factors of production, use them to produce goods and
services. Sell goods and services.
Production Possibilites Frontier (PPF) - CORRECT ANSWER -a graph that shows the combinations
of two goods the economy can possibly produce given the available resources and the available
technology
Straight line - CORRECT ANSWER -If opportunity cost remains constant, PPF is a __________.
Essentially, the same resources are equally useful for producing in either industry.
