Download Unit 1 AP Eco Test Review

Unit 1
AP Eco
Test
Review
• How are inflation and unemployment
related? Is this a long-term or short-term
relationship? What graphical representation
do we use to show this relationship?
• If you aggressively fight inflation, you will
increase unemployment. This is a shortterm relationship that is illustrated using
a Phillip’s Curve.
• How do you determine a country's standard
of living?
• Standard of living is determined by the
country’s productivity.
• How do you determine the economic costs of
something?
• The cost of something is the value of the
item you give up to get that item.
• How does a typical economist feel about the
idea of rent controls (putting a maximum
price that can be charged for rent)?
• If you put a ceiling on rent, you will hurt
the quantity and quality of available
housing.
• If a good is elastic, what will happen to
revenue if the price is increased? Why?
• Revenue will drop because people don’t
need the item, and price is a major
determining factor in whether or not to
purchase the good.
• If a good is inelastic, what will happen to
revenue if the price is increased? Why?
• Revenue will increase because people
need the item, and price is not a major
determining factor in whether or not to
purchase the good.
• If done correctly, trade can make everybody
better off. Why?
• Trade allows people or nations to
specialize in the things they do best, and
therefore, they are being more efficient.
• If scientists find evidence that proves that
eating cauliflower reduces wrinkles, what do
you think would happen in the market for
cauliflower?
• There would be an increase in the
demand for cauliflower to fight wrinkling.
• If the price of lumber increases, what would
happen in the market for houses and
furniture made from wood?
• The supply would decrease due to the
increased cost of production. Prices for
houses and furniture would increase, and
the quantity would decrease.
• If there is a decrease in demand coupled
with an increase in supply, what happens to
price and quantity?
• Price would decrease and the change in
quantity would be undetermined.
• If there is an increase in demand coupled
with a decrease in supply, what happens to
price and quantity?
• Price would increase and the change in
quantity would be undetermined.
• In America, we have seen a rise in the living
standards of American workers throughout
our history. What is the primary cause of
this?
• American workers have become more
productive through the use of
advancements in technology and the
discovery of new pools of resources.
• In Economics, scarcity is defined as what?
• Scarcity is unlimited wants coupled with
limited resources to fill those wants.
• In the circular-flow diagram, what are the two
markets and the two entities represented?
• The markets are the markets for goods &
services and the market for the factors of
production.
• The entities are households and firms.
• What do we look at to determine if we should
or should not trade with someone?
• You determine trade based upon
comparative advantage.
• What do we mean by the phrase, "There is
no such thing as a free lunch,"?
• Everything has a cost. Nothing is truly
ever free because you have to give up
something to get another thing.
• What do we mean by the term factors of
production?
• The land, labor, capital and
entrepreneurship used to produce the
items we want to consume in our
economy.
• What has to happen to cause a shortage in a
market? How is it fixed?
• The item is priced below what should be
the equilibrium price in that market. You
increase the price.
• What is a market failure? What is an example?
• A market failure is when the market system fails
to allocate resources in an efficient manner
when left on its own. A monopoly is an
example.
• What is a price ceiling? What is a price floor? If a
price ceiling is binding, what will happen in the
market for that product? If a price floor is binding,
what will happen in the market for that product?
• A ceiling is a maximum price one is allowed to
charge/pay. A floor is a minimum price one is
allowed to charge/pay. If the ceiling is binding,
it will cause a shortage in the market. If a floor
is binding, it will cause a surplus in the market.
• What is involved in thinking at the margin?
• Thinking at the margin means comparing
the costs and benefits of a decision.
• What is the difference between equity and
efficiency?
• Equity is being equal in the distribution of
an economy’s resources. Efficiency
means getting the most out of the
economy’s resources.
• When demand decreases, what happens to price
and quantity?
• Price and quantity will both decrease.
• When demand increases, what happens to price
and quantity?
• Price and quantity will both increase.
• When supply decreases, what happens to price
and quantity?
• Price will increase and quantity will decrease.
• When supply increases, what happens to price and
quantity?
• Price will decrease and quantity will increase.
• Whenever the price of a good changes, how
must you state the change in the amount
purchased or produced?
• If the price of the good is the only thing
that has changed, you need to state the
change as a change in quantity supplied
or quantity demanded.
• Know how to correctly draw and label a
production possibilities curve, and know how
to change it given certain circumstances.
(Refer to practice problems & Ch. 2 in
book).
• Know how to compute absolute advantage,
comparative advantage and opportunity
costs for an input or output problem. (Refer
to practice problems & Ch. 3 in book).
• Know how to properly draw and label a
supply and demand graph, and know to
make changes to the graph given a certain
circumstance. (Refer to practice problems
& Ch. 4 in book).
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