Summer 2026 Prin Macroeconomics Final

In market-oriented economies (ex. the US and Canada), most of the decisions are made by _________, while in command economies (ex. Cuba, North Korea), most economic decisions are made by __________.

Private citizens (Individuals) and firms; the government

When Antonio is deciding on how much to consume, he will make a choice that maximizes his satisfaction (happiness), also known as  _____________; that means, he will make a choice according to his distinct personal preferences.

Utility

Most real-world choices aren't about getting all of one thing or another, instead, most choices involve _________________, which involves comparing the benefits and costs of choosing a little more or a little less of a good.

marginal analysis

Production efficiency is represented by ________ a production possibilities frontier.

all points on

Choices that are best for the individual who makes them.

self-interest.

In countries like _____________ the command economy dominates.

Cuba and North Korea

What is meant by specialization?

When workers/ firms focus on particular tasks in the overall production process for which they are well-suited.

Define the division of labor

The production of a good or service is split up into separate tasks performed by different workers.

Which of the following would shift the production possibilities curve inward?

a decrease in the average number of hours worked per week as the labor force chooses to enjoy more leisure time

Andrew has a budget of $50 a month for movie tickets and restaurant meals. A ticket will cost $5, and a meal costs $10. Which of the following combinations is part of Andrew’s budget constraint?

2 movie tickets and 5 restaurant meals

Marginal utility is _______________ .

the additional satisfaction that a consumer derives from consuming one additional unit of a good

While talking to his friend, Bobby says, "this concerts going to cost me $50 when I buy my ticket." His friend corrects him and says, "actually, it's going to cost you more than $50 since you're skipped work to go." His friend is referring to the _________________.

budget constraint

circular flow diagram

a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

command economy

an economy where economic decisions are passed down from government authority and where the government owns the resources

Used in Acient Egypt, Medieval Manor Life, Communism, Cuba, and North Korea

division of labor

the way in which different workers divide required tasks to produce a good or service

economics

the study of how humans make choices under conditions of scarcity

economies of scale

when the average cost of producing each individual unit declines as total output increases

exports

products (goods and services) made domestically and sold abroad

fiscal policy

economic policies that involve government spending and taxes

determined by a nation’s legislative body

globalization

the trend in which buying and selling in markets have increasingly crossed national borders

goods and services market

a market in which firms are sellers of what they produce and households are buyers

gross domestic product(GDP)

measure of the size of total production in an economy

imports

products (goods and services) made abroad and then sold domestically

labor market

the market in which households sell their labor as workers to business firms or other employers

macroeconomics

the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance

market

interaction between potential buyers and sellers; a combination of demand and supply

market economy

an economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand

microeconomics

the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms

monetary policy

policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing

determined by a nation’s central bank

private enterprise

system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)

scarcity

when human wants for goods and services exceed the available supply

specialization

when workers or firms focus on particular tasks for which they are well-suited within the overall production process

theory

a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation

traditional economy

typically an agricultural economy where things are done the same as they have always been done

used in Asian, Africa, and South America

Occupations tend to stay in family

What you produce is what you consume

underground economy

a market where the buyers and sellers make transactions in violation of one or more government regulations

allocative efficiency

when the mix of goods produced represents the mix that society most desires

budget constraint

all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set

comparative advantage

when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production

invisible hands

Adam Smith's concept that individuals' self-interested behavior can lead to positive social outcomes

law of diminishing marginal utility

as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units

law of diminishing returns

as we add additional increments of resources to producing a good or service, the marginal benefit from those additional increments will decline

marginal analysis

examination of decisions on the margin, meaning a little more or a little less from the status quo

normative statement

statement which describes how the world should be

opportunity cost

measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative

opportunity set

all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income

positive statement

statement which describes the world as it is

production possibilities frontier(PPF)

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.

productive efficiency

when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

sunk costs

costs that we make in the past that we cannot recover

utility

satisfaction, usefulness, or value one obtains from consuming goods and services

Adam Smith

introduced the idea of dividing labor

wrote The Wealth of Nations in 1776

John Maynard Keynes

one of the most influential economist in modern time

Thought economics teaches you how to think, not what to think