EC 111 Exam 1 || Questions and 100% Accurate Answers.
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Course
EC 111
Institution
EC 111
What is the study of economics correct answers The study of how society manages its scarce resources
microeconomics correct answers the study of how households and firms make decisions and how they interact in markets
macroeconomics correct answers The study of the economy wide phenomena incl...
EC 111 Exam 1 || Questions and 100% Accurate Answers.
What is the study of economics correct answers The study of how society manages its scarce
resources
microeconomics correct answers the study of how households and firms make decisions and how
they interact in markets
macroeconomics correct answers The study of the economy wide phenomena including inflation
unemployment and economic growth
What is equality (equity)? What is scarcity? correct answers Equality-When prosperity is
distributed uniformly among society members
Scarcity-the limited nature of resources
efficiency correct answers When society gets the most from its scare resources
What are tradeoffs and opportunity costs? How do you measure opportunity costs? correct
answers Trade off-to achieve greater equality, could redistribute income from wealthy to poor.
But this reduces incentive to work and produce, shrinks the size of the economic "pie"
OC-whatever must be given up to obtain an item
What is rationality and thinking at the margin? correct answers Rationality is systematically and
purposefully do the best they can to achieve their objectives, given the available opportunities.
A rational decision maker takes an action if and only if the marginal benefit of the action exceeds
the marginal cost.
What is a market and market economy correct answers Market-a group of buyers and sellers
ME-allocates resources through the decisions of many households and firms as they interact in
markets
Benefits of trade correct answers Trade allows countries to specialize in what they do best and to
enjoy a greater variety of goods and services.
What is the "invisible hand"? correct answers Participants in the economy are motivated by self-
interest and that the "invisible hand" of the marketplace guides this self-interest into promoting
general economic well-being.
Assumes that an economy can work well in a free market scenario where everyone will work for
his/her own interest.
, What is a market failure? correct answers When the market fails to allocate society resources
efficiently
Characteristics of the Circular Flow Diagram correct answers In this model, the economy is
simplified to include only two types of decision makers—firms and households.
How does the Circular Flow Diagram work? Who are its "actors" and what do they do? What are
the two markets? correct answers Firms (sellers) produce goods and services using inputs, such
as labor, land, and capital (buildings and machines). These inputs are called the factors of
production.
Households (buyers) own the factors of production and consume all the goods and services that
the firms produce.
Decisions are made by households and firms. Households and firms interact in the markets for
goods and services (where households are buyers and firms are sellers) and in the markets for the
factors of production (where firms are buyers and households are sellers).
Characteristics of the Production Possibility Frontier (PPF). correct answers a graph that shows
the combinations of output that the economy can possibly produce given the available factors of
production and the available production technology
How does the PPF work? What does it tell us? correct answers The production possibilities
frontier shows the combinations of output that the economy can possibly produce.
The economy can produce any combination on or inside the frontier.
Points outside the frontier are not feasible given the economy's resources.
The slope of the production possibilities frontier measures the opportunity cost of a car in terms
of computers.
With the resources it has, the economy can produce at any point on or inside the production
possibilities frontier, but it cannot produce at points outside the frontier.
Points on (rather than inside) the production possibilities frontier represent efficient levels of
production.
Normative vs. Positive statements correct answers Positive-attempt to describe the world as it is
Negative-attempt to prescribe how the world should be
Law of Demand correct answers the claim that the quantity demanded of a good falls when the
price of the good rises, other things equal
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