PRINCIPLES OF MICROECONOMICS MIDTERM 1
REVIEW EXAM QUESTIONS AND ANSWERS (GRADED
A)
/. scarcity - Answer-✅-the inability to satisfy our wants and needs
-our inability to satisfy all our wants
/.incentives - Answer-✅rewards and penalties that encourage or discourage certain
choices
/.ADA (Americans with Disabilities Act) - Answer-✅-made it easier for disabled people
to sue their employer if they were discriminatory
-made the incentive to not hire disabled people
-"Consequences of Employment Protection? The Case of the Americans with
Disabilities Act"
-When act passed, unemployment for disabled people went up (opposite of intended
effect)
/.economics - Answer-✅-the study of choices made by individuals, governments, and
businesses in the face of scarcity and in the face of different incentives
-the social science that studies the choices that individuals, businesses, governments,
and entire societies make as they cope with scarcity and the incentives that influence
and reconcile these choices
/.agent - Answer-✅whoever is making decisions (individuals, governments, businesses)
/.microeconomics - Answer-✅-branch of economics that focuses on a particular market
-the study of the choices that individuals and businesses make, the way these choices
interact in markets, and the influence of governments
/.macroeconomics - Answer-✅-branch of economics that considers all markets to look
at the whole economy
-the study of the performance of the national economy and the global economy
/.2 big questions - Answer-✅1. How do choices determine what, how, and for whom
goods and services are produced?
2. Do choices made by agents lead to outcomes that are "good" for society?
, /.factors of production - Answer-✅the productive resources used to produce goods and
services
/.4 factors of production - Answer-✅-land (natural resources)
-labor (human effort)
-capital (infrastructure/things that help make things)
-entrepreneurship (the ability to put the factors of production together)
/.consumption - Answer-✅using goods and services
/.opportunity cost - Answer-✅-the cost of the best forgone alternative when making a
decision
-the highest-value alternative that we give up to get something
/.efficiency - Answer-✅.
/.pareto efficiency - Answer-✅-when nobody can be made better off without making
someone worse off
-uncontroversial but not perfect
/.economic model - Answer-✅-a simplified description of the world
-a description of some aspect of the economic world that includes only those features of
the world that are needed for the purpose at hand
/.ceteris paribus - Answer-✅-everything else is constant
-other things being equal; all other relevant things remaining the same
/.marginal cost - Answer-✅-the opportunity cost of producing one more unit
-the opportunity cost of producing one more unit of a good or service; the best
alternative forgone; calculated as the increase in total cost divided by the increase in
output
/.production possibilities frontier - Answer-✅the boundary between the combinations of
goods and services that can be produced and the combinations that cannot
/.5 observations about PPF and MC - Answer-✅1. the height of MC line is directly
related to the slope of the PPF line (the higher the MC line, the steeper the slope of the
PPF line)
2. we can estimate MC between points by (# of units lost)/(# of units gained) from PPF
3. we can also estimate marginal cost in the other direction between two points by
taking the reciprocal
4. marginal cost is increasing; PPF starts off flat, then gets steep
5. all points on or inside curve are possible (set of feasible choices); PPF is convex
because MC is increasing
REVIEW EXAM QUESTIONS AND ANSWERS (GRADED
A)
/. scarcity - Answer-✅-the inability to satisfy our wants and needs
-our inability to satisfy all our wants
/.incentives - Answer-✅rewards and penalties that encourage or discourage certain
choices
/.ADA (Americans with Disabilities Act) - Answer-✅-made it easier for disabled people
to sue their employer if they were discriminatory
-made the incentive to not hire disabled people
-"Consequences of Employment Protection? The Case of the Americans with
Disabilities Act"
-When act passed, unemployment for disabled people went up (opposite of intended
effect)
/.economics - Answer-✅-the study of choices made by individuals, governments, and
businesses in the face of scarcity and in the face of different incentives
-the social science that studies the choices that individuals, businesses, governments,
and entire societies make as they cope with scarcity and the incentives that influence
and reconcile these choices
/.agent - Answer-✅whoever is making decisions (individuals, governments, businesses)
/.microeconomics - Answer-✅-branch of economics that focuses on a particular market
-the study of the choices that individuals and businesses make, the way these choices
interact in markets, and the influence of governments
/.macroeconomics - Answer-✅-branch of economics that considers all markets to look
at the whole economy
-the study of the performance of the national economy and the global economy
/.2 big questions - Answer-✅1. How do choices determine what, how, and for whom
goods and services are produced?
2. Do choices made by agents lead to outcomes that are "good" for society?
, /.factors of production - Answer-✅the productive resources used to produce goods and
services
/.4 factors of production - Answer-✅-land (natural resources)
-labor (human effort)
-capital (infrastructure/things that help make things)
-entrepreneurship (the ability to put the factors of production together)
/.consumption - Answer-✅using goods and services
/.opportunity cost - Answer-✅-the cost of the best forgone alternative when making a
decision
-the highest-value alternative that we give up to get something
/.efficiency - Answer-✅.
/.pareto efficiency - Answer-✅-when nobody can be made better off without making
someone worse off
-uncontroversial but not perfect
/.economic model - Answer-✅-a simplified description of the world
-a description of some aspect of the economic world that includes only those features of
the world that are needed for the purpose at hand
/.ceteris paribus - Answer-✅-everything else is constant
-other things being equal; all other relevant things remaining the same
/.marginal cost - Answer-✅-the opportunity cost of producing one more unit
-the opportunity cost of producing one more unit of a good or service; the best
alternative forgone; calculated as the increase in total cost divided by the increase in
output
/.production possibilities frontier - Answer-✅the boundary between the combinations of
goods and services that can be produced and the combinations that cannot
/.5 observations about PPF and MC - Answer-✅1. the height of MC line is directly
related to the slope of the PPF line (the higher the MC line, the steeper the slope of the
PPF line)
2. we can estimate MC between points by (# of units lost)/(# of units gained) from PPF
3. we can also estimate marginal cost in the other direction between two points by
taking the reciprocal
4. marginal cost is increasing; PPF starts off flat, then gets steep
5. all points on or inside curve are possible (set of feasible choices); PPF is convex
because MC is increasing
