EC 110 ACTUAL FINAL EXAM – ZIRLOTT EXAM
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.
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.
, Market Failure - CORRECT ANSWER -when the market fails to allocate society's resources
efficiently. Causes: externalities when the production/consumption of a good affects bystanders
(pollution), and market power - a single buyer or seller has substantial influence on market price
(monopoly).
Economic Model - CORRECT ANSWER -a highly simplified representation of a more complicated
reality. Economists use models 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
- 2 types of "actors": households (people, consumers) and firms (businesses)
- 2 markets: the market for goods and services, the market for "factors of production"
+ factors of production: resources the economy uses to produce goods & services, including
labor, land, natural resources, capital (building&machines), these are all inputs
+Households: own the factors of production, sell/rent them to firms for income, buy/consume
goods&services
+Firms: buy/hire factors of production, use them to produce goods&services, sell
goods&services
*Study flow chart on page 25 in notes
Production Possibilities 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.
-Moving along a PPF involves shifting resources (i.e. labor) from the production of one good to
the other
-the slope of the PPF tells you the opportunity cost of one good in terms of the other
Shape of the PPF - CORRECT ANSWER --can be straight line or bow shaped
-if opportunity cost remains CONSTANT, PPF is a STRAIGHT LINE. Essentially the same resources
are equally useful for producing in either industry
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.
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.
, Market Failure - CORRECT ANSWER -when the market fails to allocate society's resources
efficiently. Causes: externalities when the production/consumption of a good affects bystanders
(pollution), and market power - a single buyer or seller has substantial influence on market price
(monopoly).
Economic Model - CORRECT ANSWER -a highly simplified representation of a more complicated
reality. Economists use models 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
- 2 types of "actors": households (people, consumers) and firms (businesses)
- 2 markets: the market for goods and services, the market for "factors of production"
+ factors of production: resources the economy uses to produce goods & services, including
labor, land, natural resources, capital (building&machines), these are all inputs
+Households: own the factors of production, sell/rent them to firms for income, buy/consume
goods&services
+Firms: buy/hire factors of production, use them to produce goods&services, sell
goods&services
*Study flow chart on page 25 in notes
Production Possibilities 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.
-Moving along a PPF involves shifting resources (i.e. labor) from the production of one good to
the other
-the slope of the PPF tells you the opportunity cost of one good in terms of the other
Shape of the PPF - CORRECT ANSWER --can be straight line or bow shaped
-if opportunity cost remains CONSTANT, PPF is a STRAIGHT LINE. Essentially the same resources
are equally useful for producing in either industry
