ECON 201 Test 1 Review (Mods 1+2) UPDATED
ACTUAL Questions and CORRECT Answers
economics - CORRECT ANSWER - social science dealing with how to best allocate scarce resources in the face of
unlimited wants/needs
scarcity - CORRECT ANSWER - finite resources lead us to choose how to best use them
3 assumptions - CORRECT ANSWER - 1. people are rational
2. people respond to economic incentives
3. optimal decisions are made at the margin
positive approach - CORRECT ANSWER - objective, fact-based statement (can be proven true or false)
normative approach - CORRECT ANSWER - subjective, feeling/opinion-based statement, ought to be
4 resources - CORRECT ANSWER - land, labor, capital, entrepreneurship
opportunity cost - CORRECT ANSWER - -the second best option after your choice/highest valued alternative
-what you lose when you choose
function - CORRECT ANSWER - the mathematical statement that describes the relationship between
inputs/outputs
law of diminishing marginal utility - CORRECT ANSWER - as you consume more utils, satisfaction will at first
increase then gradually decrease down to 0 and consumption will stop (Reese's Cups)
law of diminishing returns - CORRECT ANSWER - the more $/energy invested into something, the less benefit
there is to gain over time (shrimp problem)
marginal cost/benefit - CORRECT ANSWER - change in total cost/benefit from consuming 1 more
MB=MC - CORRECT ANSWER - the point at which we stop consumption
division of labor - CORRECT ANSWER - production is split among many workers as different tasks
specialization - CORRECT ANSWER - workers focus on what they're good at; benefits are increased productivity,
speed, quality, and innovation
production possibilities frontier (PPF) - CORRECT ANSWER - -positive tool (what is)
-the different combination of goods a country can produce in a given time frame
-inside the curve is inefficient
-on the curve is all efficient and possible choices
-bows outward bc of increasing opportunity cost
-the curve changes with economic growth/resources (change in both xy, change in x, change in y)
absolute advantage - CORRECT ANSWER - if you can produce more of a good than everyone else
comparative advantage - CORRECT ANSWER - if you can produce a good at a lower relative opportunity cost
mercantilism - CORRECT ANSWER - countries maintained trade surpluses by favoring exports in order to
increase their gold/silver
invisible hand - CORRECT ANSWER - Adam Smith; self-interest leads to what's best for society
unintended consequences - CORRECT ANSWER - ex. Chile awarding the best teachers so that they stay in the
country and teachers using the awards to apply abroad
ACTUAL Questions and CORRECT Answers
economics - CORRECT ANSWER - social science dealing with how to best allocate scarce resources in the face of
unlimited wants/needs
scarcity - CORRECT ANSWER - finite resources lead us to choose how to best use them
3 assumptions - CORRECT ANSWER - 1. people are rational
2. people respond to economic incentives
3. optimal decisions are made at the margin
positive approach - CORRECT ANSWER - objective, fact-based statement (can be proven true or false)
normative approach - CORRECT ANSWER - subjective, feeling/opinion-based statement, ought to be
4 resources - CORRECT ANSWER - land, labor, capital, entrepreneurship
opportunity cost - CORRECT ANSWER - -the second best option after your choice/highest valued alternative
-what you lose when you choose
function - CORRECT ANSWER - the mathematical statement that describes the relationship between
inputs/outputs
law of diminishing marginal utility - CORRECT ANSWER - as you consume more utils, satisfaction will at first
increase then gradually decrease down to 0 and consumption will stop (Reese's Cups)
law of diminishing returns - CORRECT ANSWER - the more $/energy invested into something, the less benefit
there is to gain over time (shrimp problem)
marginal cost/benefit - CORRECT ANSWER - change in total cost/benefit from consuming 1 more
MB=MC - CORRECT ANSWER - the point at which we stop consumption
division of labor - CORRECT ANSWER - production is split among many workers as different tasks
specialization - CORRECT ANSWER - workers focus on what they're good at; benefits are increased productivity,
speed, quality, and innovation
production possibilities frontier (PPF) - CORRECT ANSWER - -positive tool (what is)
-the different combination of goods a country can produce in a given time frame
-inside the curve is inefficient
-on the curve is all efficient and possible choices
-bows outward bc of increasing opportunity cost
-the curve changes with economic growth/resources (change in both xy, change in x, change in y)
absolute advantage - CORRECT ANSWER - if you can produce more of a good than everyone else
comparative advantage - CORRECT ANSWER - if you can produce a good at a lower relative opportunity cost
mercantilism - CORRECT ANSWER - countries maintained trade surpluses by favoring exports in order to
increase their gold/silver
invisible hand - CORRECT ANSWER - Adam Smith; self-interest leads to what's best for society
unintended consequences - CORRECT ANSWER - ex. Chile awarding the best teachers so that they stay in the
country and teachers using the awards to apply abroad
