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Economics 201 Exam Questions And Correct Answers
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Economics 201 Exam Questions And Correct AnswersWhat is economics? - Answer A social science concerned with making optimal choices
under conditions of scarcity.
Scientific Method - Answer observe
make a hypothesis
test the hypothesis
reject, don't reject, or modify the hypothesis
continue to test
Marginal Analysis - Answer means "extra"
Is it worth is??
comparison b/w marginal benefit and marginal cost
Factors of Production - Answer Land - natural resources
Labor - physical & mental talents & efforts of people to produce goods and services
Capital- man-made products to make something else machinary
Entrepreneurial Ability- takes initiative, makes decisions, innovates, takes risks
Production Possibility Curve- Answer whats attainable and what isn't attainable.
attainable is inside the curve**
,Command Market- Answer known as Socialism & Communism
**Government ownership**
decisions are made by a central planning board
Free Market System- Answer known as Capitalism
Private ownership of resources
decisions based on markets
4 Basic Questions - Response 1. What products & services will be produced?
- dollar votes*
- what will succeed or fail
2. How are the products to be produced?
- at least cost per unit using most efficient methods
- technology & resource prices
3. For whom is the output produced?
- consumer's capability & desire to pay & obtain the product
4. How will the system encourage growth?
- Technological advance
- creative destruction
Circular Flow Model - Answer
Invisible Hand - Answer 1776: Wealth of Nations by Adam Smith
, Unity of private & social interest
virtues of the market system:
- efficiency
- incentives
- freedom
Law of Demand - Answer 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 - Price increases, quantity supplied increases.
Price decreases, quantity supplied decreases.
reasons:
- price is incentives to producers
- at some point, price rises
Market Equilibrium - When the demand curve and supply curve cross.
Changes in Demand - Change in consumer tastes and preferences
Change in # of buyers
Change in income
- normal goods: income rises, ya buy more
- inferior goods: income goes up, ya buy less
change in price of related goods
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