ECO 2013 Principles of Macroeconomics: Exam #1 (Chapters 1-5) UPDATED
ACTUAL QUESTIONS AND CORRECT ANSWERS
Economics Study of individuals, firms & society - decisions to distribute limited resources to
competing wants.
Scarcity Unlimited wants > Limited resources
, Incentives Good and bad factors that influence people's actions.
Microeconomics Decision making by individuals, businessmen, industries & government.
Macroeconomics Broader issues in economy - inflation, unemployment, & national output.
Ceteris Paribus "Holding all else constant"
Efficiency How well resources are used and distributed.
Equity Fairness of issues and policies. (Remember equal = fair)
Opportunity cost Next best alternative - "highest value" wins the opportunity cost.
Production possibilities frontier Model shows combinations of 2 goods a society can produce at full employment.
Absolute advantage 1 country produce more of good than another.
Comparative advantage 1 country's opportunity cost is lower than another.
Markets Institutions that bring buyers & sellers together. (Include legal and illegal activity,
Ex. Amazon is a market)
Price system Prices to distribute resources, goods, and services.
Productive Efficiency Occurs when goods are produced at the lowest possible cost.
Allocative Efficiency Occurs when individuals who desire the goods most, get those goods and
services.
Positive Questions (Equity) Something that can be answered with facts or information.
Normative Questions (Equity) Society's beliefs on what should/should not take place.
Land Minerals, farms, oil, water, natural resources (Payment = Rent)
Labor Whatever mental & physical abilities of people (Payment = Wage)
Capital Any manufacture: tools, computers, tractors, buildings (Payment = Interest)
Ideas Combine land, labor, & capital to make goods & services (Payment = Profit)
PPF Graphical way of showing what is being produced, how much, & cost associated
with changing the production mix.
Margin Additional cost or benefit
ACTUAL QUESTIONS AND CORRECT ANSWERS
Economics Study of individuals, firms & society - decisions to distribute limited resources to
competing wants.
Scarcity Unlimited wants > Limited resources
, Incentives Good and bad factors that influence people's actions.
Microeconomics Decision making by individuals, businessmen, industries & government.
Macroeconomics Broader issues in economy - inflation, unemployment, & national output.
Ceteris Paribus "Holding all else constant"
Efficiency How well resources are used and distributed.
Equity Fairness of issues and policies. (Remember equal = fair)
Opportunity cost Next best alternative - "highest value" wins the opportunity cost.
Production possibilities frontier Model shows combinations of 2 goods a society can produce at full employment.
Absolute advantage 1 country produce more of good than another.
Comparative advantage 1 country's opportunity cost is lower than another.
Markets Institutions that bring buyers & sellers together. (Include legal and illegal activity,
Ex. Amazon is a market)
Price system Prices to distribute resources, goods, and services.
Productive Efficiency Occurs when goods are produced at the lowest possible cost.
Allocative Efficiency Occurs when individuals who desire the goods most, get those goods and
services.
Positive Questions (Equity) Something that can be answered with facts or information.
Normative Questions (Equity) Society's beliefs on what should/should not take place.
Land Minerals, farms, oil, water, natural resources (Payment = Rent)
Labor Whatever mental & physical abilities of people (Payment = Wage)
Capital Any manufacture: tools, computers, tractors, buildings (Payment = Interest)
Ideas Combine land, labor, & capital to make goods & services (Payment = Profit)
PPF Graphical way of showing what is being produced, how much, & cost associated
with changing the production mix.
Margin Additional cost or benefit
