Purdue | Econ 252 | Dr. Vargas | Exam 1
Questions and Correct Answers 2025
Latest Edition.
Economic Agent - Answer Any group or individual that makes choices.
What is Economics the study of? - Answer How agents make choices among scarce resources
and how those choices affect society
Scarcity - Answer A situation of having unlimited wants in a world of limited resources
When are resources scarce? - Answer Resources are scarce when the quantity that people
want exceeds the quantity that is available
Positive Economics - Answer Describes what people actually do, or makes predictions about
the world that can be verified with data. (Example: In July, the unemployment rate in Indiana
was 4.6 percent)
Normative Economics - Answer Recommends what an individual or society ought to do. It
depends on subjective judgments. (Example: The government should increase the minimum
wage to $15 per hour to reduce poverty.)
Microeconomics - Answer The study of individuals, firms, and government
Macroeconomics - Answer The study of the whole economy
Three Principles of Economics: - Answer Optimization, Equilibrium, Empiricism
Optimization - Answer Making the best choice possible with the given information
Equilibrium - Answer When everyone is optimizing, no one would be better off with a different
choice
, When do Tradeoffs arise? - Answer When some benefits must be given up in order to gain
others
What do economists use to describe tradeoffs? - Answer Budget Constraints (Example: 5 hours
of free time = Hours surfing the web + Hours working)
Opportunity Cost - Answer The best alternative use of a resource
The Scientific Method - Answer 1. Developing models that explain some part of the world
2. Testing those models using data to see how closely the model matches what we actually
observe
What is a Model? - Answer A simplified description of the world, also referred to as a Theory
Two important features of models - Answer 1. They are not exact
2. They generate predictions that can be tested with data
Hypothesis - Answer Predictions, typically generated by a model, that can be tested with data
Causation - Answer When one thing directly affects another through a cause and effect
relationship
Correlation - Answer When two things are correlated, there is a mutual relationship between
them
Positive Correlation - Answer They both change in the same direction
Negative Correlation - Answer They change in opposite directions
Why isn't correlation the same thing as causality? - Answer 1. Omitted variables
2. Reverse Causality
Omitted Variables - Answer If we ignore something that contributes to cause and effect, then
Questions and Correct Answers 2025
Latest Edition.
Economic Agent - Answer Any group or individual that makes choices.
What is Economics the study of? - Answer How agents make choices among scarce resources
and how those choices affect society
Scarcity - Answer A situation of having unlimited wants in a world of limited resources
When are resources scarce? - Answer Resources are scarce when the quantity that people
want exceeds the quantity that is available
Positive Economics - Answer Describes what people actually do, or makes predictions about
the world that can be verified with data. (Example: In July, the unemployment rate in Indiana
was 4.6 percent)
Normative Economics - Answer Recommends what an individual or society ought to do. It
depends on subjective judgments. (Example: The government should increase the minimum
wage to $15 per hour to reduce poverty.)
Microeconomics - Answer The study of individuals, firms, and government
Macroeconomics - Answer The study of the whole economy
Three Principles of Economics: - Answer Optimization, Equilibrium, Empiricism
Optimization - Answer Making the best choice possible with the given information
Equilibrium - Answer When everyone is optimizing, no one would be better off with a different
choice
, When do Tradeoffs arise? - Answer When some benefits must be given up in order to gain
others
What do economists use to describe tradeoffs? - Answer Budget Constraints (Example: 5 hours
of free time = Hours surfing the web + Hours working)
Opportunity Cost - Answer The best alternative use of a resource
The Scientific Method - Answer 1. Developing models that explain some part of the world
2. Testing those models using data to see how closely the model matches what we actually
observe
What is a Model? - Answer A simplified description of the world, also referred to as a Theory
Two important features of models - Answer 1. They are not exact
2. They generate predictions that can be tested with data
Hypothesis - Answer Predictions, typically generated by a model, that can be tested with data
Causation - Answer When one thing directly affects another through a cause and effect
relationship
Correlation - Answer When two things are correlated, there is a mutual relationship between
them
Positive Correlation - Answer They both change in the same direction
Negative Correlation - Answer They change in opposite directions
Why isn't correlation the same thing as causality? - Answer 1. Omitted variables
2. Reverse Causality
Omitted Variables - Answer If we ignore something that contributes to cause and effect, then
