PRINCIPLES OF MICROECONOMICS
FINAL EXAM REVIEW QUESTIONS AND
ANSWERS | VERIFIED
/. scarcity - Answer-✅unlimited wants exceed the limited resources available to fulfill
those wants
/.rational - Answer-✅systematically and purposefully do the best they can to achieve an
objective
/.incentive - Answer-✅induces someone to act
/.marginal - Answer-✅small, incremental changes
/.Law of Diminishing Marginal Utility - Answer-✅law of decreasing small changes in
pleasure
/.trade-offs - Answer-✅produce more of one good or service, means we need to
produce less of another
/.opportunity cost - Answer-✅highest valued alternative that must be given up to
engage in activity; whatever must be given up to obtain some item; marginal
benefit>marginal cost
/.centrally planned economy - Answer-✅government decides how economic resources
will be allocated--communism
/.market economy - Answer-✅decisions of the household and firms interacting in
markets that allocate resources--resources are allocated among households and firms
with little to no government interference
/.mixed economy - Answer-✅when most economic decisions result from the interaction
of buyers and sellers but the government plays a significant role in the allocation of
resources
/.productive efficiency - Answer-✅good or service is produced at the lowest possible
cost
/.allocative efficiency - Answer-✅production is in in accordance with consumer
preferences
, /.production possibilities frontier - Answer-✅curve showing the maximum attainable
combinations of two goods that can be produced with available resources and current
technology, positive tool -- "what is" -- shows trade-off curve between two quantities
/.ceteris paribus - Answer-✅to hold all else constant
/.Law of increasing marginal opportunity cost - Answer-✅opportunity cost of production
in a good rises as society produces more of it
/.absolute advantage - Answer-✅ability of one producers to make more than another
producer with the same quantity of resources
/.comparative advantage - Answer-✅ability of an individual, a firm, or country to
produce a good or service at a lower opp cost than competitors
/.competitive market - Answer-✅many buyers and sellers
/.quantity demanded - Answer-✅amount of a good or service that a consumer is willing
and able to purchase at a given price
/.law of demand - Answer-✅given ceteris paribus quantity demanded falls when prices
rise and QD rises when prices fall
/.substitution effect - Answer-✅change in QD of good that results from a change in
price, making the good more or less expensive relative to other goods that are
substitutes
/.income effect - Answer-✅change in QD of good that results from the effect of a
change in the goods price on consumer's purchasing power
/.shifters of demand - Answer-✅1. changes in income
2. changes in prices of related goods
3. changes in taste
4. change in # of buyers
5. changes in expectations about the future
/.normal goods - Answer-✅anything you consume more of the more money you makes
^ income-^demand
/.inferior goods - Answer-✅anything you buy less of the more money you make
^income-down demand
/.substitues - Answer-✅goods and services that can be used for the same purpose --
^price pepsi- ^demand coke
FINAL EXAM REVIEW QUESTIONS AND
ANSWERS | VERIFIED
/. scarcity - Answer-✅unlimited wants exceed the limited resources available to fulfill
those wants
/.rational - Answer-✅systematically and purposefully do the best they can to achieve an
objective
/.incentive - Answer-✅induces someone to act
/.marginal - Answer-✅small, incremental changes
/.Law of Diminishing Marginal Utility - Answer-✅law of decreasing small changes in
pleasure
/.trade-offs - Answer-✅produce more of one good or service, means we need to
produce less of another
/.opportunity cost - Answer-✅highest valued alternative that must be given up to
engage in activity; whatever must be given up to obtain some item; marginal
benefit>marginal cost
/.centrally planned economy - Answer-✅government decides how economic resources
will be allocated--communism
/.market economy - Answer-✅decisions of the household and firms interacting in
markets that allocate resources--resources are allocated among households and firms
with little to no government interference
/.mixed economy - Answer-✅when most economic decisions result from the interaction
of buyers and sellers but the government plays a significant role in the allocation of
resources
/.productive efficiency - Answer-✅good or service is produced at the lowest possible
cost
/.allocative efficiency - Answer-✅production is in in accordance with consumer
preferences
, /.production possibilities frontier - Answer-✅curve showing the maximum attainable
combinations of two goods that can be produced with available resources and current
technology, positive tool -- "what is" -- shows trade-off curve between two quantities
/.ceteris paribus - Answer-✅to hold all else constant
/.Law of increasing marginal opportunity cost - Answer-✅opportunity cost of production
in a good rises as society produces more of it
/.absolute advantage - Answer-✅ability of one producers to make more than another
producer with the same quantity of resources
/.comparative advantage - Answer-✅ability of an individual, a firm, or country to
produce a good or service at a lower opp cost than competitors
/.competitive market - Answer-✅many buyers and sellers
/.quantity demanded - Answer-✅amount of a good or service that a consumer is willing
and able to purchase at a given price
/.law of demand - Answer-✅given ceteris paribus quantity demanded falls when prices
rise and QD rises when prices fall
/.substitution effect - Answer-✅change in QD of good that results from a change in
price, making the good more or less expensive relative to other goods that are
substitutes
/.income effect - Answer-✅change in QD of good that results from the effect of a
change in the goods price on consumer's purchasing power
/.shifters of demand - Answer-✅1. changes in income
2. changes in prices of related goods
3. changes in taste
4. change in # of buyers
5. changes in expectations about the future
/.normal goods - Answer-✅anything you consume more of the more money you makes
^ income-^demand
/.inferior goods - Answer-✅anything you buy less of the more money you make
^income-down demand
/.substitues - Answer-✅goods and services that can be used for the same purpose --
^price pepsi- ^demand coke
