Econ FINAL Exam
Module 1
1. Define economics and scarcity and explain the economic
problem.
- Economics: The study of how people allocate their limited resources
to satisfy their unlimited wants.
- The study of how people make choices
- Scarcity: Occurs when the ingredients (resources, inputs) for
producing things that people desire are insufficient to satisfy all
wants.
2. Differentiate between microeconomics and macroeconomics.
- Microeconomics: decision making undertaken by individuals
- Pollution
- Crime
- Healthcare
- Education
- Macroeconomics: behavior of economy as a whole
- Inflation
- Taxes
- unemployment
3. Distinguish between self-interest and social interest.
- Self Interest and Social Interest: The idea that if everyone works in
their own self interest the economy will increase.
- Self Interest:
- Pursuit of one’s goals
- Humanitarian
- Prestige
- Wealth
- Power
- friendship/family
- Environment
- Social Interest:
- Society that are best for society as a whole
- Education
- Government works in social interest, to create incentives
for others to participate in social interest
- Rationality Assumption: people do not intentionally make decisions
that would leave them worse off.
- Maximizers: try to make decisions on rationality assumption
- Satisficers: trying to find a good enough solution based on limited
rationality
4. Indicate how scarcity leads to choices and measuring
opportunity cost.
- Every choice is a tradeoff
- Scarcity is NOT
, - A shortage
- The same thing as poverty
- Recall
- Scarcity occurs when our resources are insufficient for demand
- Two Types of Choices
- Non-stragetgic
- Decisions based on individuals own costs and benefits
- Strategic
- Decisions based on others decisions
- Opportunity Cost
- The highest values next best alternative that must be given ip to
attain something or satisfy a want
- Limited resources → scarcity → choices → opportunity cost
5. Define, apply and explain how incentives affect marginal
analysis.
- Marginal: add one more
- People make choices at the margin which means they evaluate the
consequences of making incremental changes in the use of their
resources
- Marginal Cost = Marginal Benefit
- Incentives are the key to reconciling self interest and social interest
- Ex: financial aid
6. Differentiate between normative and positive economics.
- Positive Economics
- Purely descriptive statements of scientific predictions
- Can be tested by checking against facts
- Normative Economics
- Analysis involving value judgements
- What you apply, it cannot be tested
7. Examine how economic theory is illustrated by models,
which in turn is evaluated by data.
- Model: chart or evidence to support
- Ex: C+I+G+X=GDP
- C- consumer spending
- I- Investment spending
- G- government spending
- X- exports
- Theory: opinion
,Module 2
1.Distinguish among the three scarcity questions and determine the
factors of production.
- 3 scarcity questions: What, How and Whom
- What?
- Scarcity
- If more of a specific item is produced then less of something
else will be produced during the same period with a given set of
resources
- How?
- Goods and services are produced by using inputs
- Four categories for input
- Land
- Labor
- Capital
- Physical and human
- Entrepreneurship
- ***money and time not included
- Whom?
- Who gets the goods and services depends on the incomes that
people earn
- Land earns RENT
- Labor earns WAGES
- Capital earns INTEREST
- Entrepreneurship earns PROFIT
2.Illustrate and analyze scarcity and choice with the assumptions
and two shapes of the production possibilities curve (PPC) and
measure opportunity cost.
- PPC represents all the possible combinations of total output that could
be produced
- Along the PPC there is a fixed quantity of productive resources of a
given quality being used efficiently
3.Compare opportunity cost to marginal cost as well as preferences
to marginal benefit and construct the marginal cost and benefit
, curves.
- Law of Increasing Relative Costs
- As society attempts to produce more of a good the opp.cost of
additional units of that good generally increases
- Bowed out PPC, no straight line
- The marginal cost of a good is the opportunity cost of producing
one more unit of it
- Preferences and Marginal Benefit
- Preferences are description of a person like or dislike
- Preferences connects with marginal benefit bc ut is the benefit
received from consuming one more unit of it
4.Distinguish between the production and allocative efficiency.
- Production Efficiency
- We achieve production efficiency if we can not produce more of
one goof without producing less of some other good
- Points on the curve are efficient
- Any point inside the curve is inefficient
- Allocative Efficiency
- When we cannot produce more of any one good without giving
up some other good that value more highly
5.Determine absolute and comparative advantage and show
specialization and exchange increase consumption.
- Absolute advantage
- The ability to produce more units of a good with fixed amount of
resources or producing the same amount with less resources
- Ex: Saudi Arabia, a nation with abundant oil supplies and
provide it to other nations
- Comparative advantage
- The ability to produce a good or service at a lower opportunity
cost
- Ex: if a country is skilled at making both cheese and
chocolate, they may determine how much labor goes into
producing each good. If it takes one hour of labor to
produce 10 units of cheese and one hour of labor to
produce 20 units of chocolate, then this country has a
comparative advantage in making chocolate.
6.Examine how choice, consumption and economic growth are
illustrated with the PPC.
- Economic Growth → increase in standard of living → increase in production →
Module 1
1. Define economics and scarcity and explain the economic
problem.
- Economics: The study of how people allocate their limited resources
to satisfy their unlimited wants.
- The study of how people make choices
- Scarcity: Occurs when the ingredients (resources, inputs) for
producing things that people desire are insufficient to satisfy all
wants.
2. Differentiate between microeconomics and macroeconomics.
- Microeconomics: decision making undertaken by individuals
- Pollution
- Crime
- Healthcare
- Education
- Macroeconomics: behavior of economy as a whole
- Inflation
- Taxes
- unemployment
3. Distinguish between self-interest and social interest.
- Self Interest and Social Interest: The idea that if everyone works in
their own self interest the economy will increase.
- Self Interest:
- Pursuit of one’s goals
- Humanitarian
- Prestige
- Wealth
- Power
- friendship/family
- Environment
- Social Interest:
- Society that are best for society as a whole
- Education
- Government works in social interest, to create incentives
for others to participate in social interest
- Rationality Assumption: people do not intentionally make decisions
that would leave them worse off.
- Maximizers: try to make decisions on rationality assumption
- Satisficers: trying to find a good enough solution based on limited
rationality
4. Indicate how scarcity leads to choices and measuring
opportunity cost.
- Every choice is a tradeoff
- Scarcity is NOT
, - A shortage
- The same thing as poverty
- Recall
- Scarcity occurs when our resources are insufficient for demand
- Two Types of Choices
- Non-stragetgic
- Decisions based on individuals own costs and benefits
- Strategic
- Decisions based on others decisions
- Opportunity Cost
- The highest values next best alternative that must be given ip to
attain something or satisfy a want
- Limited resources → scarcity → choices → opportunity cost
5. Define, apply and explain how incentives affect marginal
analysis.
- Marginal: add one more
- People make choices at the margin which means they evaluate the
consequences of making incremental changes in the use of their
resources
- Marginal Cost = Marginal Benefit
- Incentives are the key to reconciling self interest and social interest
- Ex: financial aid
6. Differentiate between normative and positive economics.
- Positive Economics
- Purely descriptive statements of scientific predictions
- Can be tested by checking against facts
- Normative Economics
- Analysis involving value judgements
- What you apply, it cannot be tested
7. Examine how economic theory is illustrated by models,
which in turn is evaluated by data.
- Model: chart or evidence to support
- Ex: C+I+G+X=GDP
- C- consumer spending
- I- Investment spending
- G- government spending
- X- exports
- Theory: opinion
,Module 2
1.Distinguish among the three scarcity questions and determine the
factors of production.
- 3 scarcity questions: What, How and Whom
- What?
- Scarcity
- If more of a specific item is produced then less of something
else will be produced during the same period with a given set of
resources
- How?
- Goods and services are produced by using inputs
- Four categories for input
- Land
- Labor
- Capital
- Physical and human
- Entrepreneurship
- ***money and time not included
- Whom?
- Who gets the goods and services depends on the incomes that
people earn
- Land earns RENT
- Labor earns WAGES
- Capital earns INTEREST
- Entrepreneurship earns PROFIT
2.Illustrate and analyze scarcity and choice with the assumptions
and two shapes of the production possibilities curve (PPC) and
measure opportunity cost.
- PPC represents all the possible combinations of total output that could
be produced
- Along the PPC there is a fixed quantity of productive resources of a
given quality being used efficiently
3.Compare opportunity cost to marginal cost as well as preferences
to marginal benefit and construct the marginal cost and benefit
, curves.
- Law of Increasing Relative Costs
- As society attempts to produce more of a good the opp.cost of
additional units of that good generally increases
- Bowed out PPC, no straight line
- The marginal cost of a good is the opportunity cost of producing
one more unit of it
- Preferences and Marginal Benefit
- Preferences are description of a person like or dislike
- Preferences connects with marginal benefit bc ut is the benefit
received from consuming one more unit of it
4.Distinguish between the production and allocative efficiency.
- Production Efficiency
- We achieve production efficiency if we can not produce more of
one goof without producing less of some other good
- Points on the curve are efficient
- Any point inside the curve is inefficient
- Allocative Efficiency
- When we cannot produce more of any one good without giving
up some other good that value more highly
5.Determine absolute and comparative advantage and show
specialization and exchange increase consumption.
- Absolute advantage
- The ability to produce more units of a good with fixed amount of
resources or producing the same amount with less resources
- Ex: Saudi Arabia, a nation with abundant oil supplies and
provide it to other nations
- Comparative advantage
- The ability to produce a good or service at a lower opportunity
cost
- Ex: if a country is skilled at making both cheese and
chocolate, they may determine how much labor goes into
producing each good. If it takes one hour of labor to
produce 10 units of cheese and one hour of labor to
produce 20 units of chocolate, then this country has a
comparative advantage in making chocolate.
6.Examine how choice, consumption and economic growth are
illustrated with the PPC.
- Economic Growth → increase in standard of living → increase in production →
