AP Micro Exam 1

Tom Richards, a local doctor, decides to play a round of golf on Wednesday afternoon. The round of golf will take Dr. Richards five hours to complete (including travel time to and from the course). The out of pocket expenses for the green fees, lost golf balls, cart rental, gas expense, and tips to the bag boys total $80. A healthy lunch at the course, which he eats everyday, cost him $20. Dr. Richards earns $100 per hour at his practice. What is the opportunity cost of Dr. Richards' Wednesday afternoon golf outing?

$500

This graph is set to the x-axis of butter and the y-axis of guns. There are two production possibilities curves, A and B. Both Start at the same point along the y-axis but A falls within B everywhere else along the curve. Which of the following statements about Figure 1 is (are) correct? The shift is the result of an increase in butter making resources or technology. The shift shows economic growth. The shift shows an increased demand for butter. As a result of the shift, the price of butter to the consumer will increase. The shift resulted from a decrease in gun making resources.

1 and 2

. Tiger Woods dropped out of Stanford University to pursue a career as a professional golfer. At the time he left the university, he was majoring in finance and would have been employable as a stock broker or financial analyst earning $150,000/year. When he turned pro, he immediately signed an endorsement contract with Nike for $20 million. a. What was Tiger's opportunity cost for becoming a professional golfer? b. Opportunity costs occur when decisions are made. Economists recommend that those decisions be based on what? c. Are opportunity costs always measured in dollar terms? Explain. d. You will spend about 90 minutes on this exam. What is your opportunity cost for spending your time in that manner?

A) Tiger's opportunity cost for becoming a professional golfer is $150,000 per year and the major he would have obtained in finance that would have helped him been employable. B) Economists recommend that the decisions made from opportunity costs are based on scarcity. Scarcity is the state of something being in low supply. When items are scarce you may have to give something up as there are limited resources to satisfy unlimited wants. C) Opportunity costs are not always measured in dollar terms for example it can be an item or time you are given up for something else. For example, Tiger Woods opportunity cost is also his major he would have obtained to become a stock broker or financial analyst. D) While spending about 90 minutes on this exam, the opportunity cost is our time we could have been spending doing other things. Time is sometimes the biggest opportunity cost as it is very valuable to many people and there will never be enough time.

The author of Wealth of Nations and the generally referred to as "the father of economics" was:

Adam Smith

The Law of Diminishing Marginal Returns is best illustrated by which of the following scenarios?

As a farmer makes additional applications of fertilizer, she realizes smaller and smaller increases in output.

Very few people in the United States today attempt to follow the example of Henry David Thoreau in On Walden Pond and "go into the woods to live simply, producing by my own hands all that is necessary for life." Economists explain this by saying:

Being self-sufficient dramatically reduces one's standard of living.

To a commercial fishing operation, the fishing boat is classified as:

Capital

Every economy is faced with three basic questions. Which one of the following is not one of those basic questions?

How to fairly tax the production and possession of products?

The term "consumer sovereignty" refers to what and is used in what type of economy?

It is used in the market economy and means "The consumer decides!"

In a day Susan can write 4 sonnets or 200 lines of computer code. Tom can write 1 sonnet or 100 lines of computer code in a day. Which is the following statements is true? Susan has an absolute advantage in both products. Susan has an absolute advantage in both products and should produce both. Susan has a comparative advantage in both products. Tom has no absolute advantage but does have a comparative advantage in writing computer code. Tom has no absolute advantage but does have a comparative advantage in writing sonnets.

Only I and IV are correct.

Which of the following statements about factors of production are true? Some nations have many resources and yet remain poor. Only those resources that are privately owned can be used efficiently. If a nation is classified as efficient, we know it possesses abundant resources of all types. A nation can have relatively few resources and still have an efficient economy.

Only statements I and IV are correct

The United States economy as best classified as a mixed economy with elements of traditional, command and market economies. Which scenarios properly match the description of the economic activity to the type of economic system Description of Economic Activity Economic System I. Hank works the same fields in the same way as his father did Traditional II. A National Guard general orders troops to attend exercises Traditional III. Student lockers are allocated alphabetically in a school Command IV. Stocks are bought and sold on the NY Stock Exchange Market V. Students choose their own major in college Market

Scenarios I, III, IV, and V are the only properly matched descriptions.

2. Explain how each of the basic economic questions (What to produce? How to produce? And For whom is it produced?) is answered in the pure market economy. You will have three explanations and each is worth five points.

What to produce? This question is answered in a pure market economy by businesses deciding what to produce based on the supply and demand forces. When an item is in high demand a company will make a lot of it because they know they will make money off of it. Consumers decide through their purchases. How to produce? Businesses get to decide how to produce goods. It is left up to individual businesses as long as they are profitable. For whom is it produced? In a pure market economy the items produces are made for the sole purpose of consumers. People who have more money can buy more which encourages hard work.

Nations gain from international trade because: it allows the nations to concentrate on those products that they produce with a comparative advantage and hence lower opportunity costs. it channels the nations' resources into those areas that are most profitable to the nation. it increases the nations' standard of living compared to self-sufficient production. it allows more goods and services to be produced.

all of the above

What is the importance of the production possibilities frontier? It can show the impact of a change in technology on production decisions. It can graphically illustrate the concept of scarcity. It allows us to see the concept of underemployment and full employment. It shows the concept of trade offs and opportunity cost.

all of the above

With specialization and trade, a nation can: enjoy more goods and service than without trade. consume beyond its product possibilities frontier. use its resources more efficiently. create more wealth for its citizens.

all of the above

Which of the following 'best' describes an incentive for a student to work harder in school?

college scholarships

In many high schools student lockers in prime locations are a highly sought after commodity. If the administration assigns those lockers alphabetically and doesn't allow students to switch lockers with their friends, the allocation system for lockers could be similar to what type of economic system?

command economy

In economics the verb "allocate" is best defined as:

distribute.

A restaurant owner motivated by profit uses all his/her resources to produce dishes that attract customers. This is an example of the use of _________________ by the free market economy

incentives

One of the economic factors that allows the free market to achieve efficiency is

incentives

In economics the term "scarce" is best defined as:

limited or valuable.

Scarcity forces people to:

makes choices

Long term economic growth is shown by a

movement outward from the origin of the whole PPF.

The crucial consequence of scarcity is that:

people must make choices among competing uses for those scarce resources

When the federal government established patent laws, it was ensuring

property rights for entrepreneurs

Which of the following is the best example of an activity undertaken by someone who economists classify as an entrepreneur?

starting a new business

Opportunity cost is defined as:

the best alternative that is given up.

To an economist, "physical capital" is best defined as:

tools, machinery, equipment and buildings used to produce goods and services.

Which of the following is one of the three basic types of economies?

traditional economy

One of the strengths of the market economy is that it depends on:

voluntary cooperation and exchange in which both sides gain.

You go to a new movie that everyone is raving about. However, you are not enjoying the movie at all, and, in fact, you feel that this is the worst movie you have ever seen. If you do not get up and leave the theater before the end of the show, though you could get a refund for your ticket, you are in effect saying that:

you stayed because you have nothing better to do with your time.