ECO 2013 Final Exam Study Guide UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
scarcity all resources are scarce, we must make choices about how we will use them
opportunity cost the value of the next best option or what we give up when we choose the first
best option
, rational self interest concept that people tend to act in ways that benefit them
positive economics the way the world is (economically)
normative economics the way we believe the world ought to be (economically)
simple trade when two parties voluntarily exchange goods, creating value and both parties are
benefiting
production possibilities frontier a graph of the potential production capabilities of a certain producer, reaches
max efficiency on the curve, inefficient below it, and impossible above it
the law of demand as price increases, quantity demanded decreases
as price decreases, quantity demanded increases
the law of supply as price increases, quantity supplied increases
as price decreases, quantity supplied decreases
change in quantity demanded a shift along the existing demand line
change in quantity supplied a shift along the existing supply line
equilibrium where supply and demand cross on the graph, efficient for both supply and
demand
what if both supply and demand curves move draw the graph, one will rise/fall the other will be indeterminate
simultaneously
consumer surplus area above equilibrium point, the difference between what a consumer is willing
to pay and actually pays
producer surplus area below equilibrium point, the difference between what price a producer is
willing to sell at and what they actually sell at
total surplus consumer surplus + producer surplus
efficiency when there is no way to reallocate goods to make total surplus bigger
price ceiling a max price for a good set by the government
price floor a minimum price for a good set by the government
shortage when quantity demanded exceeds quantity supplied
surplus when quantity supplied exceeds quantity demanded
deadweight loss consumer or producer surplus that is lost (inefficient)
Elastic when a price change results in a quantity demanded change also
CORRECT ANSWERS
scarcity all resources are scarce, we must make choices about how we will use them
opportunity cost the value of the next best option or what we give up when we choose the first
best option
, rational self interest concept that people tend to act in ways that benefit them
positive economics the way the world is (economically)
normative economics the way we believe the world ought to be (economically)
simple trade when two parties voluntarily exchange goods, creating value and both parties are
benefiting
production possibilities frontier a graph of the potential production capabilities of a certain producer, reaches
max efficiency on the curve, inefficient below it, and impossible above it
the law of demand as price increases, quantity demanded decreases
as price decreases, quantity demanded increases
the law of supply as price increases, quantity supplied increases
as price decreases, quantity supplied decreases
change in quantity demanded a shift along the existing demand line
change in quantity supplied a shift along the existing supply line
equilibrium where supply and demand cross on the graph, efficient for both supply and
demand
what if both supply and demand curves move draw the graph, one will rise/fall the other will be indeterminate
simultaneously
consumer surplus area above equilibrium point, the difference between what a consumer is willing
to pay and actually pays
producer surplus area below equilibrium point, the difference between what price a producer is
willing to sell at and what they actually sell at
total surplus consumer surplus + producer surplus
efficiency when there is no way to reallocate goods to make total surplus bigger
price ceiling a max price for a good set by the government
price floor a minimum price for a good set by the government
shortage when quantity demanded exceeds quantity supplied
surplus when quantity supplied exceeds quantity demanded
deadweight loss consumer or producer surplus that is lost (inefficient)
Elastic when a price change results in a quantity demanded change also
