Introduction to Microeconomics Exam (with errorless answers 100%)

What is economics? correct answers Economics is the study of how individuals and societies allocate their limited resources to satisfy their practically unlimited wants. What is scarcity? correct answers Scarcity exists when the marginal cost of obtaining something is greater than zero. Distinguish between a positive and negative incentive correct answers Positive incentives encourage action by offering rewards or payments. Negative incentives discourage action by providing undesirable consequences or punishments. Distinguish between direct and indirect incentives correct answers A direct incentive is one gas station lowering its prices causing it to get more business. An indirect incentive would be lower gas prices in general encouraging consumers to use more gas. What is the problem with incentives correct answers They have unintended consequences - unplanned results. What is a trade-off? correct answers Giving up one thing for another What is opportunity cost? correct answers Opportunity cost is the highest-valued alternative that must be sacrificed to get something else. What does marginal thinking involve? correct answers Making an optimal decision by deciding if the marginal benefits are greater than or equal to marginal costs, or not. What is trade? correct answers The voluntary exchange of goods and services between parties. Distinguish between a positive and normative statement. correct answers A positive statement can be tested and validated. A normative statement cannot be tested or validated. What is ceteris paribus? correct answers Ceteris paribus is when the variables that are not mentioned remain constant. Distinguish between endogenous and exogenous factors correct answers Endogenous factors are factors that we can control, they are inside the model. Exogenous factors are factors we cant control, they are outside the model. What is a production possibilities frontier (PPF)? correct answers a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently.