ECON 201 Exam questions with
answers graded A+
Production possibilities frontier (PPF) - ANS✅✅a line or curve that shows all the possible
combinations of two outputs that can be produced using all available resources
Efficient points - ANS✅✅combinations of production possibilities that squeeze the most output
from all available resources
Absolute advantage - ANS✅✅the ability to produce more of a good or service than others can with
a given amount of resources
Comparative advantage - ANS✅✅the ability to produce a good or service at a lower opportunity
cost than others
Specialization - ANS✅✅spending all of your time producing a particular good
gains from trade - ANS✅✅the improvement in outcomes that occurs when producers specialize
and exchange goods and services
economics - ANS✅✅the study of how people, individually and collectively, manage resources
microeconomics - ANS✅✅the study of how individuals and firms manage resources
macroeconomics - ANS✅✅the study of the economy on a regional, national, or international scale
rational behavior - ANS✅✅making choices to achieve goals in the most effective way possible
scarcity - ANS✅✅the condition of wanting more than we can get with available resources
opportunity cost - ANS✅✅the value of what you have to give up in order to get something; the
value of your next-best alternative
,marginal decision making - ANS✅✅comparison of additional benefits of a choice against the
additional cost it would bring, without considering related benefits and costs of past choices
sunk cost - ANS✅✅costs that have already been incurred and cannot be recovered or refunded
incentive - ANS✅✅something that causes people to behave in a certain way by changing the
trade-offs they face
efficiency - ANS✅✅use of resources in the most productive way possible to produce the goods and
services that have the greatest total economic value to society
correlation - ANS✅✅a consistently observed relationship between two events or variables
causation - ANS✅✅a relationship between two events in which one brings about the other
model - ANS✅✅a simplified representation of the important parts of a complicated situation
circular flow model - ANS✅✅a simplified representation of how the economy's transactions work
together
positive statement - ANS✅✅a factual claim about how the world actually works
normative statement - ANS✅✅a claim about how the world should be
market economy - ANS✅✅an economy in which private individuals, rather than a centralized
planning authority, make the decisions
market - ANS✅✅buyers and sellers who trade a particular good or service
competitive market - ANS✅✅a market in which fully informed, price-taking buyers and sellers
easily trade a standardized good or service
, standardized good - ANS✅✅a good for which any two units have the same features and are
interchangeable
transaction costs - ANS✅✅the costs incurred by buyer and seller in agreeing to and executing a
sale of goods or services
price taker - ANS✅✅a buyer or seller who cannot affect the market price
quantity demanded - ANS✅✅the amount of a particular good that buyers will purchase at a given
price during a specified period
law of demand - ANS✅✅a fundamental characteristic of demand which states that, all else equal,
quantity demanded rises as price falls
demand schedule - ANS✅✅a table that shows the quantities of a particular good or service that
consumers will purchase (demand) at various prices
demand curve - ANS✅✅a graph that shows the quantities of a particular good or service that
consumers will demand at various prices
substitutes - ANS✅✅goods that serve a similar enough purpose that a consumer might purchase
one in place of the other
complements - ANS✅✅goods that are consumed together, so that purchasing one will make
consumers more likely to purchase the other
normal goods - ANS✅✅goods for which demand increases as income increases
inferior goods - ANS✅✅goods for which demand decreases as income increases
quantity supplied - ANS✅✅the amount of a particular good or service that producers will offer for
sale at a given price during a specified period
answers graded A+
Production possibilities frontier (PPF) - ANS✅✅a line or curve that shows all the possible
combinations of two outputs that can be produced using all available resources
Efficient points - ANS✅✅combinations of production possibilities that squeeze the most output
from all available resources
Absolute advantage - ANS✅✅the ability to produce more of a good or service than others can with
a given amount of resources
Comparative advantage - ANS✅✅the ability to produce a good or service at a lower opportunity
cost than others
Specialization - ANS✅✅spending all of your time producing a particular good
gains from trade - ANS✅✅the improvement in outcomes that occurs when producers specialize
and exchange goods and services
economics - ANS✅✅the study of how people, individually and collectively, manage resources
microeconomics - ANS✅✅the study of how individuals and firms manage resources
macroeconomics - ANS✅✅the study of the economy on a regional, national, or international scale
rational behavior - ANS✅✅making choices to achieve goals in the most effective way possible
scarcity - ANS✅✅the condition of wanting more than we can get with available resources
opportunity cost - ANS✅✅the value of what you have to give up in order to get something; the
value of your next-best alternative
,marginal decision making - ANS✅✅comparison of additional benefits of a choice against the
additional cost it would bring, without considering related benefits and costs of past choices
sunk cost - ANS✅✅costs that have already been incurred and cannot be recovered or refunded
incentive - ANS✅✅something that causes people to behave in a certain way by changing the
trade-offs they face
efficiency - ANS✅✅use of resources in the most productive way possible to produce the goods and
services that have the greatest total economic value to society
correlation - ANS✅✅a consistently observed relationship between two events or variables
causation - ANS✅✅a relationship between two events in which one brings about the other
model - ANS✅✅a simplified representation of the important parts of a complicated situation
circular flow model - ANS✅✅a simplified representation of how the economy's transactions work
together
positive statement - ANS✅✅a factual claim about how the world actually works
normative statement - ANS✅✅a claim about how the world should be
market economy - ANS✅✅an economy in which private individuals, rather than a centralized
planning authority, make the decisions
market - ANS✅✅buyers and sellers who trade a particular good or service
competitive market - ANS✅✅a market in which fully informed, price-taking buyers and sellers
easily trade a standardized good or service
, standardized good - ANS✅✅a good for which any two units have the same features and are
interchangeable
transaction costs - ANS✅✅the costs incurred by buyer and seller in agreeing to and executing a
sale of goods or services
price taker - ANS✅✅a buyer or seller who cannot affect the market price
quantity demanded - ANS✅✅the amount of a particular good that buyers will purchase at a given
price during a specified period
law of demand - ANS✅✅a fundamental characteristic of demand which states that, all else equal,
quantity demanded rises as price falls
demand schedule - ANS✅✅a table that shows the quantities of a particular good or service that
consumers will purchase (demand) at various prices
demand curve - ANS✅✅a graph that shows the quantities of a particular good or service that
consumers will demand at various prices
substitutes - ANS✅✅goods that serve a similar enough purpose that a consumer might purchase
one in place of the other
complements - ANS✅✅goods that are consumed together, so that purchasing one will make
consumers more likely to purchase the other
normal goods - ANS✅✅goods for which demand increases as income increases
inferior goods - ANS✅✅goods for which demand decreases as income increases
quantity supplied - ANS✅✅the amount of a particular good or service that producers will offer for
sale at a given price during a specified period
