Econ B251 Final Exam UPDATED Study
Guide QUESTIONS AND CORRECT
ANSWERS
Explicit costs - CORRECT ANSWERS Out-of-pocket production
expenses recorded using the accounting method
Implicit costs - CORRECT ANSWERS Measure the alternative uses of 3
types of resources, such as physical capital, interest payment, and time
Normal profit - CORRECT ANSWERS The income associated with the
entrepreneur
Command system - CORRECT ANSWERS When workers follow
directions from their boss above them and provide feedback to their boss
Incentive system - CORRECT ANSWERS When firms have a well-
defined and well incentivized organizational hierarchy to help maximize profit
Perfect information - CORRECT ANSWERS Occurs when all relevant
information is known to everyone
Imperfect information - CORRECT ANSWERS Occurs when not all
pertinent information is known to all decision-makers
Symmetric information - CORRECT ANSWERS Everyone has the same
amount of information
, Asymmetric information - CORRECT ANSWERS Occurs when the
amount of information differs among decision-makers
Adverse selection - CORRECT ANSWERS Occurs when buyers or
sellers have more information than the other
Moral hazard - CORRECT ANSWERS When more informed individuals
have an incentive to behave or act differently because they do not bear the total
costs of their actions
Principal-agent problem - CORRECT ANSWERS Occurs when
principals'(business owners) and agents'(workers) self-interests are not aligned
Proprietorship - CORRECT ANSWERS Sole owner, benefits from
making decisions and keeping all profits, but bears all the costs for losses and
has unlimited liability
Partnership - CORRECT ANSWERS More than one owner, divides
responsibility among the partners, but has unlimited liability of the firm's debts,
partners may also disagree
Corporation - CORRECT ANSWERS Generates the most significant
amount of revenue, owners are shareholders, limited liability, owners are not
responsible for debt, but double tax liability
Perfect competition - CORRECT ANSWERS The primary demand and
supply model with an easy entry and exit into the market
Monopolistic competition - CORRECT ANSWERS Combine some
aspects of monopoly and perfect competition, produce slightly different
products, each firm has some market power, and entry and exit is relatively easy
Guide QUESTIONS AND CORRECT
ANSWERS
Explicit costs - CORRECT ANSWERS Out-of-pocket production
expenses recorded using the accounting method
Implicit costs - CORRECT ANSWERS Measure the alternative uses of 3
types of resources, such as physical capital, interest payment, and time
Normal profit - CORRECT ANSWERS The income associated with the
entrepreneur
Command system - CORRECT ANSWERS When workers follow
directions from their boss above them and provide feedback to their boss
Incentive system - CORRECT ANSWERS When firms have a well-
defined and well incentivized organizational hierarchy to help maximize profit
Perfect information - CORRECT ANSWERS Occurs when all relevant
information is known to everyone
Imperfect information - CORRECT ANSWERS Occurs when not all
pertinent information is known to all decision-makers
Symmetric information - CORRECT ANSWERS Everyone has the same
amount of information
, Asymmetric information - CORRECT ANSWERS Occurs when the
amount of information differs among decision-makers
Adverse selection - CORRECT ANSWERS Occurs when buyers or
sellers have more information than the other
Moral hazard - CORRECT ANSWERS When more informed individuals
have an incentive to behave or act differently because they do not bear the total
costs of their actions
Principal-agent problem - CORRECT ANSWERS Occurs when
principals'(business owners) and agents'(workers) self-interests are not aligned
Proprietorship - CORRECT ANSWERS Sole owner, benefits from
making decisions and keeping all profits, but bears all the costs for losses and
has unlimited liability
Partnership - CORRECT ANSWERS More than one owner, divides
responsibility among the partners, but has unlimited liability of the firm's debts,
partners may also disagree
Corporation - CORRECT ANSWERS Generates the most significant
amount of revenue, owners are shareholders, limited liability, owners are not
responsible for debt, but double tax liability
Perfect competition - CORRECT ANSWERS The primary demand and
supply model with an easy entry and exit into the market
Monopolistic competition - CORRECT ANSWERS Combine some
aspects of monopoly and perfect competition, produce slightly different
products, each firm has some market power, and entry and exit is relatively easy
