AP Economics

Which of the following describes the relationship between price and quantity supplied according to the law of supply? A) Positive relationship, illustrated by an upward-sloping supply curve B) Positive relationship, illustrated by a downward-sloping curve C) Positive relationship, illustrated by a horizontal supply curve D) Negative relationship, illustrated by an upward sloping curve E) Negative relationship illustrated by a downward-sloping supply curve

A) Positive relationship, illustrated by an upward-sloping supply curve Correct. According to the law of supply, price and quantity supplied have a positive relationship, illustrated by an upward-sloping supply curve. With all else being constant, as the price increases, the quantity supplied increases, which leads to an upward-sloping supply curve.

Which of the following illustrates the effect of a decrease in an economy's resources using a production possibilities curve (PPC) A) The economy's PPC will shift inward B) The Economy's PPC will shift outward and to the right C) The economy's PPC will become steeper D) The Economy's PPC will become flatter E) The economy's PPC will remain the same

A) The economy's PPC will shift inward Correct. The PPC will shift inward and to the left to indicate a reduction in capacity as a result of the decrease in resources.

Country X is a major buyer of Country Y's grains. Assume Country X's government announced an increase in taxes on its imports of Country Y's grains effective next month. How will this news likely affect consumers' demand for grains in Country X? A) It will increase now because the tax on imported grains will increase the future price of grains. B) It will decrease now because the tax on imported grains will increase the future price of grains. C) It will not change now because the tax on imported grains will increase the future price of grains. D) It will increase now because the tax on imported grains will increase the current price of grains E)It will decrease now because the tax on imported grains will increase the current price of grains

A)It will increase now because the tax on imported grains will increase the future price of grains. Correct. A change in price expectations about the future price of a product is a determinant of demand. When Country X's consumers expect the future price of grains to increase because of the tax on imported grains, they are better off buying more grains now at the lower price than later in the future at a higher price. Therefore, Country X's consumers' demand for grains will increase now because of the increase in price expectations.

Which of the following changes will increase the demand for bicycles? A) An increase in the price of bicycle helmet, a complementary good B) An increase in the price of scooters, a substitute good C) A decrease in the price of the bicycles D) A decrease in consumers' income E) A decrease in the number of buyers

B) An increase in the price of scooters, a substitute good Correct, an increase in the price of scooters (a substitute good) increases the demand for bicycles and shifts the demand curve to the right.

Allie is shopping when she finds a pair of running shoes priced at $90. When Allie uses her debit card to pay, it is declined because her balance is insufficient to cover the cost of the running shoes. Allie's situation best illustrates which economic concept? A) Opportunity Cost B) Scarcity C) Unlimited Resource D) Trade Offs E) Trade

B)Scarcity Correct. Scarcity is a condition in which wants exceed resources. In this case, the value of Allie's wants (price of the pair of running shoes) exceeds her resources (her bank account balance).

Which of the following will increase the market supply for new automobiles? A)An increase in the price of steel, an input in the production of automobiles B) An increase in taxes on automobile manufacturers C) An increase in subsidies to automobile manufacturers D) An increase in consumers' income E) An increase in the price of gasoline, a complementary good

C)An increase in subsidies to automobile manufacturers Correct. Subsidies are a determinant of the market supply. An increase in subsidies encourages manufacturers to produce more automobiles at the same prices. Therefore, there will be an increase in the quantity supplied at all prices, which results in an increase in the supply or a rightward shift in the supply curve.

Two nations sign a trade agreement expecting to enjoy mutual gains from the trade of a certain good. How will this event likely affect the supply of the good in the two nations? A) This event will likely cause a decrease in the quantity supplied of the good in both nations. B) This event will likely cause an increase in the quantity supplied of the good in both nations. C) This event will likely cause a decrease in the supply of the good in both nations. D) This event will likely cause an increase in the supply of the good in both nations. E) This event will likely have no effect on the good in either nation.

D)This event will likely cause an increase in the supply of the good in both nations. Correct. The trade agreement will increase competition in domestic markets by increasing the number of potential suppliers, which is a determinant of supply. The supply curve will shift to the right, which indicates an increase in quantity at every price along the supply curve in both nations.

Which of the following describes the relationship between price and quantity demanded according to the law of demand? A) Positive relationship, illustrated by an upward- sloping demand curve B) Positive relationship, illustrated by a downward-sloping demand curve C)Negative relationship, illustrated by horizontal demand curve D) Negative relationship, illustrated by an upward-sloping demand curve E) Negative relationship, illustrated by a downward-sloping demand curve

E) Negative relationship, illustrated by a downward-sloping demand curve Correct. According to the law of demand, price and quantity demanded move in opposite directions (an inverse, or negative, relationship), leading to a downward-sloping demand curve. As price increases, the quantity demanded decreases, which leads to a downward-sloping demand curve. A positive, upward-sloping curve would be the result of a relationship between price and quantity where an increase in price leads to an increase in quantity, which is not supported by the law of demand.

Which of the following contributes to the economic problem of scarcity? A) Humans are insufficient B) Resources are unlimited C) Resources are efficient D) Resources are expensive E) Resources have alternative uses

E) Resources have alternative uses. Correct. When a resource has an alternative use, there are multiple needs for the resource and so it is scarce.

Which of the following is not a scarce resource? A) Land B) Labor C) Capitol D) Entrepreneurship E) Stocks

E) Stocks Correct. Stocks are not a factor of production and therefore are not a scarce resource. All factors of production—land, labor, capital, and entrepreneurship—are scarce resources.

Assume household income has fallen dramatically in Country X and the cost of construction materials for building new houses has increased. How will these changes affect the equilibrium price and equilibrium quantity for new houses? A) The equilibrium price will increase, and the equilibrium quantity will decrease. B) The equilibrium price will decrease, and the equilibrium quantity will decrease. C)The equilibrium price will decrease, and the equilibrium quantity will increase. D) The equilibrium price will decrease, and the equilibrium quantity will be indeterminate. E) The equilibrium price will be indeterminate, and the equilibrium quantity will decrease.

E) The equilibrium price will be indeterminate, and the equilibrium quantity will decrease. Correct. Consumer income is a determinant of demand. A fall in consumer income decreases consumer demand at all prices. This results in a leftward shift in the demand curve, reflecting a decrease in equilibrium price and quantity. Cost of production is a determinant of supply. An increase in the cost of production decreases the supply at all prices. This results in a leftward shift in the supply curve, reflecting an increase in equilibrium price and a decrease in equilibrium quantity. The decrease in both demand and supply will therefore result in a decrease in the equilibrium quantity but will have an indeterminate effect on the equilibrium price.

Michael and Martha run a mechanic shop. In one hour Michael can perform eight oil changes or change ten tires. In one hour Martha can perform seven oil changes or change fourteen tires. Given this information which of the following is true? A) Martha has a comparative advantage in changing oil. B) Martha has an absolute advantage in changing oil. C) Michael has a comparative advantage in changing tires. D)Michael has an absolute advantage in changing tires. E.) Michael has an absolute and a comparative advantage in changing oil

E.) Michael has an absolute and a comparative advantage in changing oil Correct. Absolute advantage describes a situation in which an individual can produce more of one good than any other person using the same amount of resources. Michael has an absolute advantage over Martha in changing oil because Michael can perform 8 oil changes in one hour while Martha can only perform 7 oil changes in one hour. Comparative advantage describes a situation in which an individual can produce a good or provide a service at a lower opportunity cost than another individual. Martha's opportunity cost of performing 1 oil change is 2 tire changes, while Michael's opportunity cost of performing 1 oil change is 1.25 tire changes. Therefore, Michael has a comparative advantage in oil changes.