PRINCIPLES OF ECONOMICS A STREAMLINED
APPROACH CONCEPT REVIEW GUIDE 2026
ECONOMIC POLICY AND MARKET
EQUILIBRIUM
◉ Economics. Answer: The study of the choices people make to
attain their goals, given their scarce resources.
◉ Economic model. Answer: A simplified version of reality used to
analyze real-world economic situations.
◉ Market. Answer: A group of buyers and sellers of a good or service
and the institution or arrangement by which they come together to
trade.
◉ Marginal analysis. Answer: Analysis that involves comparing
marginal benefits and marginal costs.
◉ Trade-off. Answer: The idea that because of scarcity, producing
more of one good or service means producing less of another good
or service.
,◉ Opportunity cost. Answer: The highest-valued alternative that
must be given up to engage in an activity.
◉ Centrally planned economy. Answer: An economy in which the
government decides how economic resources will be allocated.
◉ Market economy. Answer: An economy in which the decisions of
households and firms interacting in markets allocate economic
resources.
◉ Mixed economy. Answer: An economy in which most economic
decisions result from the interaction of buyers and sellers in markets
but in which the government plays a significant role in the allocation
of resources.
◉ Productive efficiency. Answer: A situation in which a good or
service is produced at the lowest possible cost.
◉ Allocative efficiency. Answer: A state of the economy in which
production is in accordance with consumer preferences; in
particular, every good or service is produced up to the point where
the last unit provides a marginal benefit of society equal to the
marginal cost of producing it.
, ◉ Voluntary exchange. Answer: A situation that occurs in markets
when both the buyer and seller of a product are made better off by
the transaction.
◉ Equity. Answer: The fair distribution of economic benefits.
◉ Economic variable. Answer: Something measurable that can have
different values, such as the incomes of doctors.
◉ Positive analysis. Answer: Analysis concerned with what is.
◉ Normative analysis. Answer: Analysis concerned with what out to
be.
◉ Microeconomics. Answer: The study of how households and firms
make choices, how they interact in markets, and how the
government attempts to influence their choices.
◉ Macroeconomics. Answer: The study of the economy as a whole,
including topics such as inflation, unemployment, and economic
growth.
◉ Entrepreneur. Answer: An entrepreneur is someone who operates
a business. In a market system, entrepreneurs decide what goods
APPROACH CONCEPT REVIEW GUIDE 2026
ECONOMIC POLICY AND MARKET
EQUILIBRIUM
◉ Economics. Answer: The study of the choices people make to
attain their goals, given their scarce resources.
◉ Economic model. Answer: A simplified version of reality used to
analyze real-world economic situations.
◉ Market. Answer: A group of buyers and sellers of a good or service
and the institution or arrangement by which they come together to
trade.
◉ Marginal analysis. Answer: Analysis that involves comparing
marginal benefits and marginal costs.
◉ Trade-off. Answer: The idea that because of scarcity, producing
more of one good or service means producing less of another good
or service.
,◉ Opportunity cost. Answer: The highest-valued alternative that
must be given up to engage in an activity.
◉ Centrally planned economy. Answer: An economy in which the
government decides how economic resources will be allocated.
◉ Market economy. Answer: An economy in which the decisions of
households and firms interacting in markets allocate economic
resources.
◉ Mixed economy. Answer: An economy in which most economic
decisions result from the interaction of buyers and sellers in markets
but in which the government plays a significant role in the allocation
of resources.
◉ Productive efficiency. Answer: A situation in which a good or
service is produced at the lowest possible cost.
◉ Allocative efficiency. Answer: A state of the economy in which
production is in accordance with consumer preferences; in
particular, every good or service is produced up to the point where
the last unit provides a marginal benefit of society equal to the
marginal cost of producing it.
, ◉ Voluntary exchange. Answer: A situation that occurs in markets
when both the buyer and seller of a product are made better off by
the transaction.
◉ Equity. Answer: The fair distribution of economic benefits.
◉ Economic variable. Answer: Something measurable that can have
different values, such as the incomes of doctors.
◉ Positive analysis. Answer: Analysis concerned with what is.
◉ Normative analysis. Answer: Analysis concerned with what out to
be.
◉ Microeconomics. Answer: The study of how households and firms
make choices, how they interact in markets, and how the
government attempts to influence their choices.
◉ Macroeconomics. Answer: The study of the economy as a whole,
including topics such as inflation, unemployment, and economic
growth.
◉ Entrepreneur. Answer: An entrepreneur is someone who operates
a business. In a market system, entrepreneurs decide what goods
