Econ 102 Final Exam ISU UPDATED ACTUAL
Questions and CORRECT Answers
Economics - CORRECT ANSWER - a social science that seeks to understand how humans make decisions in the
face of scarcity
Scarcity - CORRECT ANSWER - One word- Limits
factors of production - CORRECT ANSWER - land, labor, capital
Division and specialization of labor - CORRECT ANSWER - the process in which workers select specialized tasks
to make a product
Specialization - CORRECT ANSWER - when workers or firms focus on particular tasks for which they are well-
suited within the overall production process
Adam Smith, The Wealth of Nations - CORRECT ANSWER - people work for money not kindness of their heart
Economies of Scale - CORRECT ANSWER - As the level of production increases, the average cost of producing
each individual unit declines
Example - CORRECT ANSWER -
Microeconomics - CORRECT ANSWER - The individual units that make up the whole of the economy
Macroeconomics - CORRECT ANSWER - Looks at economy as a whole, broad perspective/ large picture
Fiscal Policy - CORRECT ANSWER - Government spending and taxes. Federal, state, and city. Conducted by
Congress, executive branch, and the nation's legislative body
Monetary Policy - CORRECT ANSWER - manipulating money supply, manipulating interest rates, changing bank
regulations. Conducted by Central Bank
circular flow diagram - CORRECT ANSWER - a diagram that views the economy as consisting of households and
firms interacting in a goods and services market and a labor market. Businesses send wages, salaries, benefits, and goods
and services to households. Households send Labor services and payment for goods and services to businesses.
Command Economy (Communism) - CORRECT ANSWER - an economic system where economic decisions are
passed down (through hierarchy) from government planners where factors of production are owned by the government
Market Economy (Capitalism) - CORRECT ANSWER - decentralized and by the people not the govt. Free market
Market - CORRECT ANSWER - interaction between potential buyers and sellers; a combination of demand and
supply
underground economy - CORRECT ANSWER - buyers and sellers make transactions without the govt's approval.
Drugs, weapons, not reporting cash
Globalization - CORRECT ANSWER - the expanding cultural, political, and economic connections between
people around the world.
Imports - CORRECT ANSWER - Produced abroad and sold domestically. An American consumer who buys a
Ferrari that was produced in Italy is an example of a US
Exports - CORRECT ANSWER - produced domestically and sold abroad
, GDP - CORRECT ANSWER - The total dollar amount of all final goods and services produce within a country's
borders in one year
budget constraint - CORRECT ANSWER - shows the maximum quantity of two products that a person can
purchase based on the price of the products and the person's budget.
opportunity cost - CORRECT ANSWER - The next best alternative. All around us and is part of daily decision
making. A true cost that economists incorporate into cost models.
marginal - CORRECT ANSWER - Incremental changes. A little more or a little less of something. An increase or
decrease in one unit
marginal analysis - CORRECT ANSWER - Used to examine the decisions of incremental change. Examining the
benefits and costs of choosing a little more or a little less of a good.
Utility - CORRECT ANSWER - the term that economists use to describe the satisfaction or happiness gained from
consuming a product
law of diminishing marginal utility - CORRECT ANSWER - Shows the general pattern of higher levels of
happiness for the first few units consumed compared to the last few units consumed
law of diminishing returns - CORRECT ANSWER - Shows the general pattern of higher levels of happiness for
the first few units consumed compared to the last few units consumed. Ex. A farmer adding fertilizer which is good in
small amounts but too much is harmful
production possibilities frontier (PPF) shows - CORRECT ANSWER - A trade-off between two goods (or
services) that could be produced.
B. The efficient use of resources, points beyond the PPF are unattainable and points inside the PPF are inefficient
C. The maximum combinations of two goods (or services) that can be produced given the economy's available
knowledge and factors of production
PPF Chart - CORRECT ANSWER -
positive statement - CORRECT ANSWER - describes the world as it is. Fact
normative statement - CORRECT ANSWER - statement which describes how the world should be. Opinion
invisible hand - CORRECT ANSWER - Shows how producers and consumers interact in the spontaneous market
to create the immense and dynamic economy that we see today (aka the pricing mechanism of the economy). Ex. A
business lowering the price of a good that they have a surplus of.
Demand - CORRECT ANSWER - The amount of some good or service that consumers are able to purchase at
each price. The consumer has to be willing to buy it. If you are able to buy it, it doesn't mean you are part of the demand.
You have to be both willing and able to purchase to be part of the demand.
A change in demand is shown by - CORRECT ANSWER - Shown by shifting the demand curve (out and to the
right or back and to the left), and occurs because something in the world other than price has changed
Price - CORRECT ANSWER - what a buyer pays for a unit of the specific good or service
change in quantity demanded is shown by - CORRECT ANSWER - Shown by a movement from point to point
along one demand curve, and occurs because the price of the product itself has changed
quantity demanded - CORRECT ANSWER - Total number of units that consumers would purchase at a specific
price. Will change if price changes.
Law of Demand - CORRECT ANSWER - inverse relationship between price and quantity demanded
Demand schedule - CORRECT ANSWER - demand info on a table
Questions and CORRECT Answers
Economics - CORRECT ANSWER - a social science that seeks to understand how humans make decisions in the
face of scarcity
Scarcity - CORRECT ANSWER - One word- Limits
factors of production - CORRECT ANSWER - land, labor, capital
Division and specialization of labor - CORRECT ANSWER - the process in which workers select specialized tasks
to make a product
Specialization - CORRECT ANSWER - when workers or firms focus on particular tasks for which they are well-
suited within the overall production process
Adam Smith, The Wealth of Nations - CORRECT ANSWER - people work for money not kindness of their heart
Economies of Scale - CORRECT ANSWER - As the level of production increases, the average cost of producing
each individual unit declines
Example - CORRECT ANSWER -
Microeconomics - CORRECT ANSWER - The individual units that make up the whole of the economy
Macroeconomics - CORRECT ANSWER - Looks at economy as a whole, broad perspective/ large picture
Fiscal Policy - CORRECT ANSWER - Government spending and taxes. Federal, state, and city. Conducted by
Congress, executive branch, and the nation's legislative body
Monetary Policy - CORRECT ANSWER - manipulating money supply, manipulating interest rates, changing bank
regulations. Conducted by Central Bank
circular flow diagram - CORRECT ANSWER - a diagram that views the economy as consisting of households and
firms interacting in a goods and services market and a labor market. Businesses send wages, salaries, benefits, and goods
and services to households. Households send Labor services and payment for goods and services to businesses.
Command Economy (Communism) - CORRECT ANSWER - an economic system where economic decisions are
passed down (through hierarchy) from government planners where factors of production are owned by the government
Market Economy (Capitalism) - CORRECT ANSWER - decentralized and by the people not the govt. Free market
Market - CORRECT ANSWER - interaction between potential buyers and sellers; a combination of demand and
supply
underground economy - CORRECT ANSWER - buyers and sellers make transactions without the govt's approval.
Drugs, weapons, not reporting cash
Globalization - CORRECT ANSWER - the expanding cultural, political, and economic connections between
people around the world.
Imports - CORRECT ANSWER - Produced abroad and sold domestically. An American consumer who buys a
Ferrari that was produced in Italy is an example of a US
Exports - CORRECT ANSWER - produced domestically and sold abroad
, GDP - CORRECT ANSWER - The total dollar amount of all final goods and services produce within a country's
borders in one year
budget constraint - CORRECT ANSWER - shows the maximum quantity of two products that a person can
purchase based on the price of the products and the person's budget.
opportunity cost - CORRECT ANSWER - The next best alternative. All around us and is part of daily decision
making. A true cost that economists incorporate into cost models.
marginal - CORRECT ANSWER - Incremental changes. A little more or a little less of something. An increase or
decrease in one unit
marginal analysis - CORRECT ANSWER - Used to examine the decisions of incremental change. Examining the
benefits and costs of choosing a little more or a little less of a good.
Utility - CORRECT ANSWER - the term that economists use to describe the satisfaction or happiness gained from
consuming a product
law of diminishing marginal utility - CORRECT ANSWER - Shows the general pattern of higher levels of
happiness for the first few units consumed compared to the last few units consumed
law of diminishing returns - CORRECT ANSWER - Shows the general pattern of higher levels of happiness for
the first few units consumed compared to the last few units consumed. Ex. A farmer adding fertilizer which is good in
small amounts but too much is harmful
production possibilities frontier (PPF) shows - CORRECT ANSWER - A trade-off between two goods (or
services) that could be produced.
B. The efficient use of resources, points beyond the PPF are unattainable and points inside the PPF are inefficient
C. The maximum combinations of two goods (or services) that can be produced given the economy's available
knowledge and factors of production
PPF Chart - CORRECT ANSWER -
positive statement - CORRECT ANSWER - describes the world as it is. Fact
normative statement - CORRECT ANSWER - statement which describes how the world should be. Opinion
invisible hand - CORRECT ANSWER - Shows how producers and consumers interact in the spontaneous market
to create the immense and dynamic economy that we see today (aka the pricing mechanism of the economy). Ex. A
business lowering the price of a good that they have a surplus of.
Demand - CORRECT ANSWER - The amount of some good or service that consumers are able to purchase at
each price. The consumer has to be willing to buy it. If you are able to buy it, it doesn't mean you are part of the demand.
You have to be both willing and able to purchase to be part of the demand.
A change in demand is shown by - CORRECT ANSWER - Shown by shifting the demand curve (out and to the
right or back and to the left), and occurs because something in the world other than price has changed
Price - CORRECT ANSWER - what a buyer pays for a unit of the specific good or service
change in quantity demanded is shown by - CORRECT ANSWER - Shown by a movement from point to point
along one demand curve, and occurs because the price of the product itself has changed
quantity demanded - CORRECT ANSWER - Total number of units that consumers would purchase at a specific
price. Will change if price changes.
Law of Demand - CORRECT ANSWER - inverse relationship between price and quantity demanded
Demand schedule - CORRECT ANSWER - demand info on a table
