Econ 104 PSU exam 1 review Questions and
Answers
What is Macroeconomics - -The study of the economy as a whole including topics such as
inflation unemployment and economic growth
-What is the current unemployment rate - -4.1%
-What are the 3 economic ideas about how people make choices in the market - -1 people
are rational
2 people respond to economic incentives
3 optimal decisions are made at the margins
-What does people are rational mean - -people take into account all available information
when making a decision
-What does people respond to economic incentives mean - -people try to optimize there
pay in every way they can
example the bus driver will sit in traffic
-What is true about marginal cost and benefit - -if MB>MC people will allow others to pay
less until MB=MC
-What is the economic problem every society has to solve - -Scarce resources and
unlimited wants
-What does margin mean - -additional or a small adjustment to something
-What does unlimited wants have to do with - -improving our standard of living
-What is standard of living - -the amount of goods and services we can buy
-What do we need to produce more goods and services - -resources which are scarce
-4 factors of production - -land
capital
labor
entrepreneurship
-What 3 things does socity decide to do - -What to produce
how to produce
for whom to produce
, -What is a centrally planned economy - -government run economy. they make all the
decisions. example North Korea and Russia
-What is a market economy - -economy driven by free markets government collect tax
-What is a mixed economy - -a mixture of free market economy with regulations on the
economy coming from the government. The USA is and example of this economy
-What is positive economics - -statements that can be verified and or tested scientifically
using real world data and economic models
-What is normative economics - -statements based upon opinion and are scientifically
untestable
-What is more economic freedom associated with - -improved quality of life
-What does the PPF show - -shows the maximum attainable combinations of two products
that may be produced ceteris paribus
-What does ceteris paribus mean - -all other things remain unchanged
-What does opportunity cost mean - -the highest valued alternative that must be given up
to engage in an activity
-What does increasing marginal opportunity cost mean - -as an economy moves down
along PPF it can experience increasing opportunity cost
-Why do opportunity costs increase from A to E - -Some resources are better suited for
production of one good opposed to the other good
-3 Assumptions of the PPF - -1 resources are fixed
2 full employment of resources
3 technology is unchanged
-If we relax the ceteris paribus assumptions the PPF will do what - -shift out which is
economic growth or shift inward which is economic decline
-What does PPF shifting outward mean - -Economic growth has occurs when there is an
increase in the resource base and or a technological advance
-What results from PPF shifting outward - -A countries standard of living increases in
terms of the number of goods and services available
-What are the 2 most important sources of economic growth - -increase in capital goods
and technological advance
Answers
What is Macroeconomics - -The study of the economy as a whole including topics such as
inflation unemployment and economic growth
-What is the current unemployment rate - -4.1%
-What are the 3 economic ideas about how people make choices in the market - -1 people
are rational
2 people respond to economic incentives
3 optimal decisions are made at the margins
-What does people are rational mean - -people take into account all available information
when making a decision
-What does people respond to economic incentives mean - -people try to optimize there
pay in every way they can
example the bus driver will sit in traffic
-What is true about marginal cost and benefit - -if MB>MC people will allow others to pay
less until MB=MC
-What is the economic problem every society has to solve - -Scarce resources and
unlimited wants
-What does margin mean - -additional or a small adjustment to something
-What does unlimited wants have to do with - -improving our standard of living
-What is standard of living - -the amount of goods and services we can buy
-What do we need to produce more goods and services - -resources which are scarce
-4 factors of production - -land
capital
labor
entrepreneurship
-What 3 things does socity decide to do - -What to produce
how to produce
for whom to produce
, -What is a centrally planned economy - -government run economy. they make all the
decisions. example North Korea and Russia
-What is a market economy - -economy driven by free markets government collect tax
-What is a mixed economy - -a mixture of free market economy with regulations on the
economy coming from the government. The USA is and example of this economy
-What is positive economics - -statements that can be verified and or tested scientifically
using real world data and economic models
-What is normative economics - -statements based upon opinion and are scientifically
untestable
-What is more economic freedom associated with - -improved quality of life
-What does the PPF show - -shows the maximum attainable combinations of two products
that may be produced ceteris paribus
-What does ceteris paribus mean - -all other things remain unchanged
-What does opportunity cost mean - -the highest valued alternative that must be given up
to engage in an activity
-What does increasing marginal opportunity cost mean - -as an economy moves down
along PPF it can experience increasing opportunity cost
-Why do opportunity costs increase from A to E - -Some resources are better suited for
production of one good opposed to the other good
-3 Assumptions of the PPF - -1 resources are fixed
2 full employment of resources
3 technology is unchanged
-If we relax the ceteris paribus assumptions the PPF will do what - -shift out which is
economic growth or shift inward which is economic decline
-What does PPF shifting outward mean - -Economic growth has occurs when there is an
increase in the resource base and or a technological advance
-What results from PPF shifting outward - -A countries standard of living increases in
terms of the number of goods and services available
-What are the 2 most important sources of economic growth - -increase in capital goods
and technological advance
