AP Microeconomics - Unit 1 Test

value-added tax

a national sales tax

Economy

a system for coordinating a society's productive and consumptive activities

gains from trade

an economic principle that states that people can get more of what they want through trade than they could if they tried to be self-sufficient; this increase in output is due to specialization

command economy

an economy in which is publicly owned and a central authority makes production and consumption decisions

market economy

an economy in which the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions

Resource

anything that can be used to produce something else (land, labor, capital).

Suppose that you prefer reading a book you already own to watching videos and that you prefer watching videos to listening to music. If these are your only three choices, what is the opportunity cost of reading? a. watching videos and listening to music b. watching videos c. listening to music d. sleeping e. the price of the book

b. watching videos

marginal decisions

decisions about what to do with, or whether to do a bit more or a bit less of an activity

individual choice

decisions by individuals about what to do, which necessarily involve decisions about what not to do

Efficient

describes a market or economy in which there is no way to make anyone better off without making at least one person worse off

Which of the following is a basic source of economic growth in the production possibilities model? a. specialization b. efficiency c. opportunity cost d. trade-offs e. improved technology

e. improved technology

terms of trade

indicate the rate at which one good can be exchanged for another

Incentives

rewards or punishments that motivate particular choices

Economics

the study of scarcity and choice

marginal analysis

the study of the costs and benefits of doing a little bit more of an activity versus a little bit less

Technology

the technical means for producing goods and services

trade-off

when you give up something in order to have something else

Trade

when, in a market economy, individuals provide goods and services to others and receive goods and services in return

Why do individuals have to make choices?

Resources are scarce.

Suppose that in a day Nigel can make three placemats or one gallon of maple syrup, and Pauline can make two placemats or two gallons of maple syrup. Which of the following terms of trade would be mutually beneficial for Nigel and Paulina? a. Nigel trades one placemat for 1/2 gallon of maple syrup from Pauline b. Pauline trades one placemat for 1/2 gallon of maple syrup from Nigel c. Nigel trades one placemat for two gallons of maple syrup from Pauline d. Pauline trades one placemat for two gallons of maple syrup from Nigel e. Nigel trades one placemat for 1/4 gallon of maple syrup from Pauline

a. Nigel trades one placemat for 1/2 gallon of maple syrup from Pauline

Which of the following questions is studied in microeconomics? a. Should I go to college or get a job after I graduate? b. What government policies should be adopted to promote employment in the economy? c. How many people are employed in the economy this year? d. Has the overall level of prices in the economy increased or decreased this year? e. What determines the overall salary levels paid to workers in a given year?

a. Should I go to college or get a job after I graduate?

Falling output in an economy is consistent with which of the following? a. a recession b. an expansion c. a recovery d. falling unemployment e. long-term economic growth

a. a recession

Comparative advantage explains which of the following? a. a country's ability to produce more of a particular good or service b. when production is considered efficient c. why the production possibilities curve is bowed outward d. the source of gains from trade e. why the production possibilities curve shifts outward

a. a country's ability to produce more of a particular good or service

The labor force is made up entirely by a. employed workers b. unemployed workers c. employed workers and retired workers d. employed workers and unemployed workers e. college students and employed workers

a. employed workers

Consumers in the country of Isolandia prefer to eat a balanced mix of cereal and fruit, and the country does not engage in international trade. If Isolandia produces at a point on its production possibilities curve at which only cereal is made, then the country achieves a. productive efficiency but not allocative efficiency b. allocative efficiency but not productive efficiency c. neither productive efficiency nor allocative efficiency d. economic growth and allocative efficiency e. economic growth and productive efficiency

a. productive efficiency but not allocative efficiency

productive efficiency

achieved by an economy if it produces at a point on its production possibilities curve

allocative efficiency

achieves by an economy if it produces at the point along its production possibilities curve that makes consumers as well off as possible

Which of the following statements is normative? a. The price of gasoline is rising b. The price of gasoline is too high c. Gas prices are expected to fall in the near future d. Cars can run on gasoline, electricity, or diesel fuel e. When the price of gasoline rises, drivers buy less gasoline

b. The price of gasoline is too high

In a market economy, most choices about production and consumption are made by which of the following? a. politicians b. many individuals and firms c. the government d. managers e. economists

b. many individuals and firms

If there is no specialization of resources in the production of milk and cream, the production possibilities curve for an economy that produces these two goods is a. bowed out and downward-sloping b. straight and downward-sloping c. bowed in and downward-sloping d. horizantal e. vertical

b. straight and downward-sloping

Which of the following is true about the ceteris paribus assumption? a. It makes use of more complicated but more rewarding models b. It means "maximize profit at all costs" c. It simplifies the study of how a single change affects an economy d. It means "the customer is always right" e. It means "people behave rationally"

c. It simplifies the study of how a single change affects an economy

Which of the following is a normative statement? a. The unemployment rate is expected to rise b. Individuals purchase more of a good when the price rises c. The government should increase the minimum wage d. An increase in the tax rate on wage earnings reduces the incentive to work e. Public education generates greater benefits than costs

c. The government should increase the minimum wage

There are opportunities for mutually beneficial trade between two countries whenever a. one can produce more of everything than the other b. the production possibilities curves of the two countries are identical c. each country has a comparative advantage in making something d. the countries are similar in size e. no country has an absolute advantage in producing both goods

c. each country has a comparative advantage in making something

The fundamental problem with command economies is a lack of a. central authority b. workers c. incentives d. land e. opportunity cost

c. incentives

Which of the following is not an example of resource scarcity? a. There is a finite amount of petroleum in the world b. Farming communities are experiencing droughts c. There are not enough physicians to satisfy all desires for health care in the United States d. Cassette tapes are no longer being produced e. Teachers would like to have more instructional technology in their classrooms

d. Cassette tapes are no longer being produced

Which of the following situation is explained by increasing opportunity costs? a. More people go to college when the job market is good b. More people do their own home repairs when hourly wages fall c. There are more parks in crowded cities than in suburban areas d. Convenience stores cater to busy people e. People with higher wages are more likely to mow their own lawns

d. Convenience stores cater to busy people

Which of the following is an example of capital? a. a cheeseburger dinner b. a construction worker c. petroleum d. a factory e. an acre of farmland

d. a factory

If Country A has an absolute advantage in making butter and is considering trade with Country B, we know that a. Country A also has a comparative advantage in making butter b. Country B has a comparative advantage in making butter c. Country A can make more butter than Country B can with a given amount of input d. if the two countries trade, Country A should specialize in making butter e. if the two countries trade, Country B should specialize in making butter

d. if the two countries trade, Country A should specialize in making butter

The study of costs and benefits of doing a little bit more of an activity instead of doing a little bit less is called a. economics b. microeconomics c. macroeconomics d. marginal analysis e. market analysis

d. marginal analysis

Which of the following is a goal for the economy? a. declining labor force b. inflation c. deflation d. rising aggregate output e. rising unemployment rate

d. rising aggregate output

You can either go to a movie or study for an exam. Which of the following is an opportunity cost of studying for the exam? a. a higher grade on the exam b. the price of a movie ticket c. the cost of paper, pens, books, and other study materials d. the enjoyment from seeing the movie e. the sense of achievement from learning

d. the enjoyment from seeing the movie

The production possibilities curve will certainly be straight if a. making more of one good means that less of the other good can be made b. the opportunity cost of making each good increases as more is made c. no resources are specialized for the production of either good d. the opportunity cost of making the first unit of each good is the same e. the economy experiences decreasing opportunity costs for the production of both goods

d. the opportunity cost of making the first unit of each good is the same

All opportunity costs are a. nonmonetary b. forgone monetary payments c. losses of time d. values of alternatives that must be given up e. related to educational opportunities

d. values of alternatives that must be given up

The country of Sneedleham makes needles and ham at a constant opportunity cost. If Sneedleham acquires more resources but the opportunity cost of producing each good remains the same, how will the country's production possibilities curve change? a. It will shift inward and become steeper b. It will shift outward and become steeper c. It will change from being linear to being bowed outward d. It will shift inward with no change in slope e. It will shift outward with no change in slope

e. It will shift outward with no change in slope

Which of the following exist(s) in a command economy but not in a market economy? a. property rights for individuals b. land, labor, capital, and entrepreneurship c. plenty of incentives to motivate firms to produce what consumers need d. an absence of long lines of customers at shops e. a central authority making production and consumption decisions

e. a central authority making production and consumption decisions

Which of the following pairs indicates a category of resources and an example of that resource? a. money (e.g. investment) b. capital (e.g. money) c. capital (e.g. minerals) d. land (e.g. factory) e. land (e.g. timber)

e. land (e.g. timber)

Economic growth is defined as an increase in a. the output of an economy b. the employment level in an economy c. the spending level in an economy d. the quality of life in an economy e. the maximum possible output of an economy

e. the maximum possible output of an economy

economic aggregates

economic measures that summarize data across many different markets

property rights

establish ownership and grant individuals the right to trade goods and services with each other

production possibilities curve (PPC)

illustrates the trade-offs facing an economy that produces only two goods; shows the maximum quantity of one good that can be produced for each possible quantity of the other good produces

Scarce

in short supply; when a resource is not available in sufficient quantities to satisfy all the various ways society wants to use it

factors of production

land, labor, capital, and entrepreneurship

specialization

situation in which each person specializes in the task that he or she is good at performing

comparative advantage

the advantage conferred by an individual if the opportunity cost of producing the good or service is lower for that individual than for other people

absolute advantage

the advantage conferred by the ability to produce more of a good or service with a given amount of time and resources; different from comparative advantage

positive economics

the branch of economic analysis that describes the way the economy actually works

normative economics

the branch of economic analysis that makes prescriptions about the way the economy should work

Macroeconomics

the branch of economics that is concerned with the overall ups and downs of the economy

Microeconomics

the branch of economics that studies how individuals, households, and firms make decisions and how those decisions interact

marginal cost

the cost of doing something one more time

marginal benefit

the gain from doing something one more time

opportunity cost

the real cost of an item: the value of the next best alternative that you must give up in order to get that item