ECON 2020 Exam 1 Questions and
Answers Graded A+
Four Properties of Trade - Correct answer-1. Trade helps both sides
2. Trade creates value
3. Trade is a positive sum game
4. Trade encourages diverse interactions
Unconstrained Vision of Economics - Correct answer-Presupposes that we have
sufficient resources to satisfy all wants and needs, you don't have to choose
Constrained Vision of Economics - Correct answer-We have limited resources, but
unlimited wants and desires
Scarcity - Correct answer-When economic resources are limited, economics start
with constrained visions (we can only satisfy some wants and desires
Resources, labor, capital
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,Scarcity → Choices → Tradeoffs → Opportunity Cost → Incentives (Incentives
affect behavior**)→ Behavior
Production Possibilities Frontier - Correct answer-- Output of two things on each
axis
- Can produce on what is in or on the frontier, not what is outside
- Illustrates tradeoffs, scarcity, and opportunity cost → higher opportunity cost
leads to increased trade-off
Three Fundamental Questions of Production - Correct answer-1. What will be
produced?
2. How will it be produced?
3. For whom will it be produced
Law of Demand - Correct answer-All else equal, quantity demanded falls when
price rises and rises when price falls
Incentives affect behavior
Foundations of Economics: Incentives - Correct answer-Motives for people to act
or exert effort, people will make the choice that will most improve their situation
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, Can be: positive or negative, direct or indirect
Foundations of Economics: Trade-offs - Correct answer-Choosing to do one thing
preventing you from going another
Foundations of Economics: Opportunity Cost - Correct answer-Quantifies what
and how much is being given up, highest valued alternative must be be sacrificed
to get something else
Foundations of Economics: Marginal Thinking - Correct answer-What is worth
what you are giving up, whether the benefit of one more unit of something is
greater than its cost
First Two Rotunda Principles - Correct answer-1. Trade creates value
2. Incentives affect behavior
Comparative Advantage - Correct answer-The situation an individual, business, or
country can produce at a lower opprotunity cost than a competitor can: power of
specialization
Circular Flow - Correct answer-Shows how goods, services, and resources flow
through the economy via commerce between households (consumers) and firms
(businesses)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
Answers Graded A+
Four Properties of Trade - Correct answer-1. Trade helps both sides
2. Trade creates value
3. Trade is a positive sum game
4. Trade encourages diverse interactions
Unconstrained Vision of Economics - Correct answer-Presupposes that we have
sufficient resources to satisfy all wants and needs, you don't have to choose
Constrained Vision of Economics - Correct answer-We have limited resources, but
unlimited wants and desires
Scarcity - Correct answer-When economic resources are limited, economics start
with constrained visions (we can only satisfy some wants and desires
Resources, labor, capital
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,Scarcity → Choices → Tradeoffs → Opportunity Cost → Incentives (Incentives
affect behavior**)→ Behavior
Production Possibilities Frontier - Correct answer-- Output of two things on each
axis
- Can produce on what is in or on the frontier, not what is outside
- Illustrates tradeoffs, scarcity, and opportunity cost → higher opportunity cost
leads to increased trade-off
Three Fundamental Questions of Production - Correct answer-1. What will be
produced?
2. How will it be produced?
3. For whom will it be produced
Law of Demand - Correct answer-All else equal, quantity demanded falls when
price rises and rises when price falls
Incentives affect behavior
Foundations of Economics: Incentives - Correct answer-Motives for people to act
or exert effort, people will make the choice that will most improve their situation
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, Can be: positive or negative, direct or indirect
Foundations of Economics: Trade-offs - Correct answer-Choosing to do one thing
preventing you from going another
Foundations of Economics: Opportunity Cost - Correct answer-Quantifies what
and how much is being given up, highest valued alternative must be be sacrificed
to get something else
Foundations of Economics: Marginal Thinking - Correct answer-What is worth
what you are giving up, whether the benefit of one more unit of something is
greater than its cost
First Two Rotunda Principles - Correct answer-1. Trade creates value
2. Incentives affect behavior
Comparative Advantage - Correct answer-The situation an individual, business, or
country can produce at a lower opprotunity cost than a competitor can: power of
specialization
Circular Flow - Correct answer-Shows how goods, services, and resources flow
through the economy via commerce between households (consumers) and firms
(businesses)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
