ECON 110: PRINCIPLES OF ECONOMICS EXAM
QUESTIONS WITH CORRECT ANSWERS 2026/2027
Definition of positive statement - CORRECT ANSWER -expresses a fact
Definition of a normative statement - CORRECT ANSWER -expresses opinion or judgement
What is not represented in a typical PPC - CORRECT ANSWER -preferences
Terms of Trade - CORRECT ANSWER -prices at which international goods are traded
Gains of trade - CORRECT ANSWER -additional goods countries can consume because of trade
Factor markets - CORRECT ANSWER -Households sell and firms buy the services of labor, capital,
and land
Product markets - CORRECT ANSWER -where goods and services are bought and sold by
consumers and firms
What is meant by saying that demand curve is a marginal willingness to pay curve? - CORRECT
ANSWER -the height of the demand curve indicates the price the consumer is willing to pay for
one more unit of the good
These accurately capture the law of demand - CORRECT ANSWER -- demand curves have a
negative slope
- quantity demanded falls as price increases
- the marginal willingness to pay for a good decreases as one consumes more and more of the
good
, Definition of supply shifter - CORRECT ANSWER -anything that affects the marginal cost of
producing a good
What really happens when supply increases? - CORRECT ANSWER -holding a price fixed, the firm
chooses to produce more output
What does "a competitive equilibrium maximizes the total surplus" mean? - CORRECT ANSWER
-the economy is efficient in so far as all beneficial trades are transacted, and no unbeneficial
trades are transacted
What will happen if the government imposes a quantity restriction on a market? - CORRECT
ANSWER -- price will increase
- consumer surplus will fall
- market will become inefficient, and incur deadweight loss
If A and B are complements, what will happen if B's price falls? - CORRECT ANSWER -demand for
A will shift out
What would happen if C is an inferior good, as the consumers income increases? - CORRECT
ANSWER -it will shift in as the income increases because their preferences will be normal goods
Excise tax - CORRECT ANSWER -a tax on the production or sale of a good
Monetary policy - CORRECT ANSWER -government doing something to the banks or money to in
hopes of expanding or contracting economic activity
Fiscal policy - CORRECT ANSWER -government increasing or decreasing it spending or collecting
more or less in tax revenue in hope of expanding or contracting economic activity
QUESTIONS WITH CORRECT ANSWERS 2026/2027
Definition of positive statement - CORRECT ANSWER -expresses a fact
Definition of a normative statement - CORRECT ANSWER -expresses opinion or judgement
What is not represented in a typical PPC - CORRECT ANSWER -preferences
Terms of Trade - CORRECT ANSWER -prices at which international goods are traded
Gains of trade - CORRECT ANSWER -additional goods countries can consume because of trade
Factor markets - CORRECT ANSWER -Households sell and firms buy the services of labor, capital,
and land
Product markets - CORRECT ANSWER -where goods and services are bought and sold by
consumers and firms
What is meant by saying that demand curve is a marginal willingness to pay curve? - CORRECT
ANSWER -the height of the demand curve indicates the price the consumer is willing to pay for
one more unit of the good
These accurately capture the law of demand - CORRECT ANSWER -- demand curves have a
negative slope
- quantity demanded falls as price increases
- the marginal willingness to pay for a good decreases as one consumes more and more of the
good
, Definition of supply shifter - CORRECT ANSWER -anything that affects the marginal cost of
producing a good
What really happens when supply increases? - CORRECT ANSWER -holding a price fixed, the firm
chooses to produce more output
What does "a competitive equilibrium maximizes the total surplus" mean? - CORRECT ANSWER
-the economy is efficient in so far as all beneficial trades are transacted, and no unbeneficial
trades are transacted
What will happen if the government imposes a quantity restriction on a market? - CORRECT
ANSWER -- price will increase
- consumer surplus will fall
- market will become inefficient, and incur deadweight loss
If A and B are complements, what will happen if B's price falls? - CORRECT ANSWER -demand for
A will shift out
What would happen if C is an inferior good, as the consumers income increases? - CORRECT
ANSWER -it will shift in as the income increases because their preferences will be normal goods
Excise tax - CORRECT ANSWER -a tax on the production or sale of a good
Monetary policy - CORRECT ANSWER -government doing something to the banks or money to in
hopes of expanding or contracting economic activity
Fiscal policy - CORRECT ANSWER -government increasing or decreasing it spending or collecting
more or less in tax revenue in hope of expanding or contracting economic activity
