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ECON 402 EXAM 1 || with Error-free Solutions.
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3 Key Economic Ideas correct answers 1. People are rational 2. People respond to incentives 3. People make optimal decisions at the margin People are rational correct answers Consumers use all available information as they act to achieve their goals; weighing the benefits and costs, deciding w...

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  • August 16, 2024
  • 3
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • 3 key economic ideas

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  • ECON 402
  • ECON 402

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ECON 402 EXAM 1 || with Error-free Solutions.
3 Key Economic Ideas correct answers 1. People are rational
2. People respond to incentives
3. People make optimal decisions at the margin

People are rational correct answers Consumers use all available information as they act to
achieve their goals; weighing the benefits and costs, deciding when the benefits outweigh the
cost

People respond to incentives correct answers Consumers respond to economic incentives such as
cost and benefit analysis

People make optimal decisions at the margin correct answers Consumers will want to make a
decision that will have the marginal benefit match the marginal cost (profit)

What is the economic problem that every society must solve? correct answers Scarcity - Every
society has a limited amount of resources (workers, machines, raw materials) and so can only
produce a limited amount of goods/services

Economic Model correct answers -Simplified representation of 2 or more variables interacting
with each other
-Take real life, and make it easier to interpret
-Normative: What SHOULD happen
-Positive: What IS happening

PPF correct answers Production Possibilities Frontier
-a model (curve) showing the maximum attainable combinations of 2 products that may be
purchased with available resources and technology
-visual representation of opportunity cost

Increasing Marginal Opportunity Cost correct answers -Increase the production of 1 good, the
opportunity cost to produce the additional good(s) will increase
-More realistic, ratio isn't always 1:1

Economic Growth correct answers -Growth affects all levels of production
-Slope stays the same

Technological Change correct answers -Technological change affects only 1 good
-Slope changes (so does opp. cost)

Absolute Advantage correct answers The ability to produce MORE, given same resources

Comparative Advantage correct answers -The ability to produce CHEAPER, given same
resources
-The ability to produce at a lower opp. cost

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