Econ 203 Exam 1 || with Complete Solutions.
10 principles of economics consist of correct answers 1. people face tradeoffs
2. the cost of something is what you give up to get it
3. rational people think at the margin
4. people respond to incentives
5. trade makes everyone better off
6. markets are usually a good way to organize economic activity
7. governments can sometimes improve market outcomes
8. a country standard of living depends on its ability to produce goods and services
9. prices rise when government prints too much money
10. society faces a short-run tradeoff between inflation and unemployment
Gross Domestic Product (GDP) correct answers measuring the value of the output of all
goods/services produced by an economy in a given year
What determined a country's standard of Living correct answers GDP per capita or GDP divided
by population
Scarcity correct answers more of an item can not be obtained without sacrificing something of
value
Opportunity Cost correct answers what must be sacrificed to obtain more of a good
What is the opportunity cost of getting a hair cut? correct answers the money spent, time taken
from a day, and whatever else someone could have done with that money/time
Example of positive economics correct answers The marginal tax rate is 35%
Example of normative economics correct answers The tax rate is too high
Positive economics correct answers what is
Normative economics correct answers what should be, opinion, VALUED JUDGEMENT
Example #2 of positive economics correct answers It is 60 degrees in college station
, Example #2 of normative economics correct answers It is chilly outside
Circular flow model correct answers A model of an economy including households, factor
markets, firms, and goods markets
Production possibilities frontier correct answers a graph that shows a given set of reasons, and a
given level of technology, all the combinations of goods and services a country can produce.
Increasing opportunity cost correct answers as more of good X is produced, the opportunity cost
of producing additional X increases
Sources of economic growth correct answers an increase in recourses and a technological
advancement
Absolute advantage correct answers if 2 producers, A and B produce the same good X, A has an
__________ if A can produce more X than B, using the same quality of inputs
Comparative advantage correct answers if 2 producers, A and B produce the same good X, A has
a ________ producing good X if A can produce X at a lower opportunity cost than B
When do you benefit/have potential gains from trade exist? correct answers When comparative
advantage is present
Market correct answers The interaction between buyers and sellers
Demand correct answers The relationship between price of a good and the quantity of that good
buyers are willing and able to purchase, other things equal
Law of Demand correct answers other things equal, the higher the price of a good, the less
quantity demanded (and vice verse)
Market Demand Curve correct answers shows quantity demanded by all buyers in the market at
various prices, other things equal
What makes demand curves shift? correct answers change in buyers income
Normal Good correct answers the demand increases when income increases
Inferior Good correct answers the demand decreases when income increases
Substitutes correct answers when an increase in the price of X causes an increase in the demand
for Y
Complements correct answers when an increase in the price of good X causes an increase in
demand for good Y
10 principles of economics consist of correct answers 1. people face tradeoffs
2. the cost of something is what you give up to get it
3. rational people think at the margin
4. people respond to incentives
5. trade makes everyone better off
6. markets are usually a good way to organize economic activity
7. governments can sometimes improve market outcomes
8. a country standard of living depends on its ability to produce goods and services
9. prices rise when government prints too much money
10. society faces a short-run tradeoff between inflation and unemployment
Gross Domestic Product (GDP) correct answers measuring the value of the output of all
goods/services produced by an economy in a given year
What determined a country's standard of Living correct answers GDP per capita or GDP divided
by population
Scarcity correct answers more of an item can not be obtained without sacrificing something of
value
Opportunity Cost correct answers what must be sacrificed to obtain more of a good
What is the opportunity cost of getting a hair cut? correct answers the money spent, time taken
from a day, and whatever else someone could have done with that money/time
Example of positive economics correct answers The marginal tax rate is 35%
Example of normative economics correct answers The tax rate is too high
Positive economics correct answers what is
Normative economics correct answers what should be, opinion, VALUED JUDGEMENT
Example #2 of positive economics correct answers It is 60 degrees in college station
, Example #2 of normative economics correct answers It is chilly outside
Circular flow model correct answers A model of an economy including households, factor
markets, firms, and goods markets
Production possibilities frontier correct answers a graph that shows a given set of reasons, and a
given level of technology, all the combinations of goods and services a country can produce.
Increasing opportunity cost correct answers as more of good X is produced, the opportunity cost
of producing additional X increases
Sources of economic growth correct answers an increase in recourses and a technological
advancement
Absolute advantage correct answers if 2 producers, A and B produce the same good X, A has an
__________ if A can produce more X than B, using the same quality of inputs
Comparative advantage correct answers if 2 producers, A and B produce the same good X, A has
a ________ producing good X if A can produce X at a lower opportunity cost than B
When do you benefit/have potential gains from trade exist? correct answers When comparative
advantage is present
Market correct answers The interaction between buyers and sellers
Demand correct answers The relationship between price of a good and the quantity of that good
buyers are willing and able to purchase, other things equal
Law of Demand correct answers other things equal, the higher the price of a good, the less
quantity demanded (and vice verse)
Market Demand Curve correct answers shows quantity demanded by all buyers in the market at
various prices, other things equal
What makes demand curves shift? correct answers change in buyers income
Normal Good correct answers the demand increases when income increases
Inferior Good correct answers the demand decreases when income increases
Substitutes correct answers when an increase in the price of X causes an increase in the demand
for Y
Complements correct answers when an increase in the price of good X causes an increase in
demand for good Y
