ECON 1023 PRACTICE EXAM
QUESTIONS AND DETAILED
SOLUTIONS 2026
▶ "Care taker" Economics. Answer: People will take better care of
something if they "own" it.
▶ Private Property. Answer: Owned by individuals/groups (not public).
▶ Eminent Domain. Answer: Govt. will seize property if they believe it to
be in the best interest of society.
▶ Division of Labor/Specialization. Answer: People do what they do best.
Efficiency=Growth=Full employment.
▶ Tragedy of the Commons. Answer: When things are commonly owned
they are not well taken care of.
Examples: the commons, air, the ocean, black rhinos.
▶ Comparative advantage. Answer: When producers produce or choose
not to produce something because they have an abundance or lack of
economic resources due to geography, politics, technology, etc.
comparatively to others who are producing or not producing a product due
to relative opportunity cost.
▶ Absolute advantage. Answer: When a particular individual or country
can produce more of a specific commodity than another individual or
country using the same amount of resources.
▶ (Market structures) Competition leads to:. Answer: Competition leads to:
Lower prices
Better quality
Efficiency
,▶ Degree of Competition. Answer: The degree of competition affects the
decisions made by firms in that market.
Decisions such as:
What price to charge?
How much to produce?
Degree of Competition
In market economies, most markets are competitive
However, some markets are more competitive than others
▶ Pure/Perfect Competition structure. Answer: Most competitive
Number of firms: Many
Variety of Good: Sellers offer identical products. Each seller's product is a
perfect substitute for the product of other sellers.
Market Power: None. No controls over prices. Selles are "price takers".
They have to take the price set by the market.
Barriers to Entry: Easy to enter to market
Non-Price Competition: No non-price competition
Examples: Agricultural markets.
▶ Monopolistic Competition structure. Answer: Not a monopoly
Number of firms: Many
Variety of Good: Slightly different product. Each seller's product is a
somewhat imperfect substitute for the products of other sellers
Market Power: Some control over prices if product differentiation is
successful in making buyers choose your product.
Barriers to Entry: Fairly easy to enter. Few barriers to entry
Non-Price Competition: LOTS of non-price competition
Examples: Gas stations. fast food. dry cleaning
▶ Oligopoly structure. Answer: Number of firms: Few
Variety of Good: Products are either the same or slightly different. Each
seller's product is a close substitute for the products of other sellers.
Market Power: Significant control over prices. If a firm makes a price
change, it will hold only if other firms make the price change also
(COLLUSION).
Barriers to Entry: Significant barriers to entry. Huge start-up costs,
regulatory restrictions, and licensing fees.
non-price competition: LOTS of non-price competition
Examples: Cars and airlines
, ▶ Monopoly structure. Answer: Least competitive
Number of firms: ONE FIRM
Variety of Good: Seller sells product for which there are no close
substitutes.
Market Power: Significant control over price. Seller is "PRICE
SEARCHER". Searchers and price that generates maximum profit.
Barriers to Entry: Significant barrier to entry. "Natural" barriers and
regulatory restrictions.
non-price competition: May exist: advertising
Examples: Public utilities and companies with patents.
▶ Example of free market economies. Answer: Japan in the late 70's to
80's
Hong Kong- mostly
Industrial Revolution Europe and America
▶ Friedrich Hayek. Answer: Modern Free Market Economists
Defended classic liberalism and free market economics against socialist
and collectivist thought.
Having served in WWI he wanted to use economics as a way of avoiding
future wars.
Denationalize Money.Friedrich Hayek
▶ John Maynard Keynes. Answer: Modern Free Market Economists
Father of Keynesian Economics: Foundation for Mid to late 20th century
economics.
Wrote The General Theory of Employment, Interest, and Money
Promoted social liberalism.
Believed governments could help the economy by spending- Fiscal Policy.
▶ How does the market answer the Economic Questions? Which goals are
reached through free market thinking and practice?. Answer: Growth,
Economic Freedom, Efficiency, and Price Stability (through competition)
are promoted in a true market economy.
Full employment, Economic Justice, Equity, Financial Security, and
Protection of the environment are not always relevant.
▶ Mixed economies. Answer: Constantly changing economic systems.
QUESTIONS AND DETAILED
SOLUTIONS 2026
▶ "Care taker" Economics. Answer: People will take better care of
something if they "own" it.
▶ Private Property. Answer: Owned by individuals/groups (not public).
▶ Eminent Domain. Answer: Govt. will seize property if they believe it to
be in the best interest of society.
▶ Division of Labor/Specialization. Answer: People do what they do best.
Efficiency=Growth=Full employment.
▶ Tragedy of the Commons. Answer: When things are commonly owned
they are not well taken care of.
Examples: the commons, air, the ocean, black rhinos.
▶ Comparative advantage. Answer: When producers produce or choose
not to produce something because they have an abundance or lack of
economic resources due to geography, politics, technology, etc.
comparatively to others who are producing or not producing a product due
to relative opportunity cost.
▶ Absolute advantage. Answer: When a particular individual or country
can produce more of a specific commodity than another individual or
country using the same amount of resources.
▶ (Market structures) Competition leads to:. Answer: Competition leads to:
Lower prices
Better quality
Efficiency
,▶ Degree of Competition. Answer: The degree of competition affects the
decisions made by firms in that market.
Decisions such as:
What price to charge?
How much to produce?
Degree of Competition
In market economies, most markets are competitive
However, some markets are more competitive than others
▶ Pure/Perfect Competition structure. Answer: Most competitive
Number of firms: Many
Variety of Good: Sellers offer identical products. Each seller's product is a
perfect substitute for the product of other sellers.
Market Power: None. No controls over prices. Selles are "price takers".
They have to take the price set by the market.
Barriers to Entry: Easy to enter to market
Non-Price Competition: No non-price competition
Examples: Agricultural markets.
▶ Monopolistic Competition structure. Answer: Not a monopoly
Number of firms: Many
Variety of Good: Slightly different product. Each seller's product is a
somewhat imperfect substitute for the products of other sellers
Market Power: Some control over prices if product differentiation is
successful in making buyers choose your product.
Barriers to Entry: Fairly easy to enter. Few barriers to entry
Non-Price Competition: LOTS of non-price competition
Examples: Gas stations. fast food. dry cleaning
▶ Oligopoly structure. Answer: Number of firms: Few
Variety of Good: Products are either the same or slightly different. Each
seller's product is a close substitute for the products of other sellers.
Market Power: Significant control over prices. If a firm makes a price
change, it will hold only if other firms make the price change also
(COLLUSION).
Barriers to Entry: Significant barriers to entry. Huge start-up costs,
regulatory restrictions, and licensing fees.
non-price competition: LOTS of non-price competition
Examples: Cars and airlines
, ▶ Monopoly structure. Answer: Least competitive
Number of firms: ONE FIRM
Variety of Good: Seller sells product for which there are no close
substitutes.
Market Power: Significant control over price. Seller is "PRICE
SEARCHER". Searchers and price that generates maximum profit.
Barriers to Entry: Significant barrier to entry. "Natural" barriers and
regulatory restrictions.
non-price competition: May exist: advertising
Examples: Public utilities and companies with patents.
▶ Example of free market economies. Answer: Japan in the late 70's to
80's
Hong Kong- mostly
Industrial Revolution Europe and America
▶ Friedrich Hayek. Answer: Modern Free Market Economists
Defended classic liberalism and free market economics against socialist
and collectivist thought.
Having served in WWI he wanted to use economics as a way of avoiding
future wars.
Denationalize Money.Friedrich Hayek
▶ John Maynard Keynes. Answer: Modern Free Market Economists
Father of Keynesian Economics: Foundation for Mid to late 20th century
economics.
Wrote The General Theory of Employment, Interest, and Money
Promoted social liberalism.
Believed governments could help the economy by spending- Fiscal Policy.
▶ How does the market answer the Economic Questions? Which goals are
reached through free market thinking and practice?. Answer: Growth,
Economic Freedom, Efficiency, and Price Stability (through competition)
are promoted in a true market economy.
Full employment, Economic Justice, Equity, Financial Security, and
Protection of the environment are not always relevant.
▶ Mixed economies. Answer: Constantly changing economic systems.
