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Economics 201 exam solutions 2024
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Economics 201 exam solutions 2024
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Economics 201 exam solutions 2024What is economics? - ANS A social science concerned with making optimal choices
under conditions of scarcity.
Scientific Method - ANS observe
make a hypothesis
test the hypothesis
reject, don't reject, or modify the hypothesis
continue to test
Marginal Analysis - ANS means "extra"
Is it worth is??
comparison b/w marginal benefit and marginal cost
Factors of Production - ANS Land - natural resources
Labor - physical & mental talents & efforts of people to produce goods and services
Capital - manmade products to make something else (machinery)
Entrepreneurial Ability - takes initiative, makes decisions, innovates, takes risks
Production Possibility Curve - ANS whats attainable and what isn't attainable.
attainable is inside the curve**
Command Market - ANS known as Socialism & Communism
**Government ownership**
decisions are made by a central planning board
Free Market System - ANS known as Capitalism
Private ownership of resources
decisions based on markets
4 Fundamental Questions - ANS 1. What goods and services will be produced?
- dollar votes*
- what will survive or fail
, 2. How will the goods be produced?
- minimize the cost per unit by using the most efficient techniques
- technology & prices of resources
3. Who will get the output?
- consumer's ability & willingness to pay & get the product
4. How will the system promote progress?
- Technological advance
- creative destruction
Circular Flow Model - ANS
Invisible Hand - ANS 1776: Wealth of Nations by Adam Smith
Unity of private & social interest
virtues of the market system:
- efficiency
- incentives
- freedom
Law of Demand - ANS price falls, quantity demand rises.
price rises, quantity demand falls.
reasons:
- common sense
- law of diminishing marginal utility
- income effect & substitution effects
Law of Supply - ANS price rises, quantity supplied rises.
price falls, quantity supplied falls.
reasons:
- price is incentives to producers
- at some point, price rises
Market Equilibrium - ANS occurs when the demand curve and supply curve intersect.
Changes in Demand - ANS - change in consumer tastes and preferences
- change in # of buyers
- change in income
- normal goods: income goes up, ya buy more
- inferior goods: income goes up, ya buy less
- change in price of related goods
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