Download AP ECONOMICS CHAPTER 1 STUDY GUIDE

1. In every economic system, choices must be made
because resources are:
A) infinite, but economic wants are finite.
B) finite, but economic wants are insatiable.
C) unlimited, but economic wants are limited.
D) limited, and so are economic wants.
8. In every economic system, choices must be made because
resources are:
A) infinite, but economic wants are finite.
B) finite, but economic wants are insatiable.
C) unlimited, but economic wants are limited.
D) limited, and so are economic wants.
2. When an economist states that "there is no free
lunch," the economist means that:
A) the marginal cost is greater than the marginal
benefit.
B) the marginal benefit is greater than the marginal
cost.
C) there is a foregone opportunity from resource
use.
D) there is a tradeoff between cost and benefit.
10. Which of the following will NOT entail an outward shift of
the PPC?
A) an upgrading of the quality of a nation's human resources
B) an increase in the quantity of a society's labor force
C) the reduction of unemployment
D) the improvement of a society's technological knowledge
11. According to economists, economic self-interest:
A) is a reality that underlies economic behavior.
C) is more characteristic of men than of women.
B) has the same meaning as selfishness.
D) is usually self-defeating.
3. The basic economic problem is the combined
existence of:
A) inflation and unemployment.
B) economic freedom and income equality.
C) scarce economic resources and unlimited
economic wants.
D) growing populations and the depletion of natural
resources.
12. Opportunity cost is best defined as:
A) marginal cost minus marginal benefit.
B) the time spent on an economic activity.
C) the value of the best foregone alternative.
D) the money cost of an economic decision.
4. The reason that the production possibilities curve
bows outward from the origin is that:
A) opportunity costs are increasing.
B) opportunity costs are decreasing.
C) there are no opportunity costs.
D) opportunity costs are constant.
13. Another description for ceteris paribus is:
A) other things equal.
B) loaded terminology.
C) the fallacy of composition.
D) post hoc, ergo propter hoc.
14. The basic economic problem is the combined
existence of:
A) inflation and unemployment.
B) economic freedom and income equality.
C) scarce economic resources and unlimited
economic wants.
D) growing populations and the depletion of natural
resources.
5. A tradeoff exists between two economic goals, X and
Y. This tradeoff means that:
A) X causes Y.
B) X and Y are equal.
C) getting more of X requires getting more of Y.
D) getting more of X requires getting less of Y.
6. Opportunity cost is best defined as:
A) marginal cost minus marginal benefit.
B) the time spent on an economic activity.
C) the value of the best foregone alternative.
D) the money cost of an economic decision.
15. The basic purpose of the other-things-equal assumption is
to:
A) allow one to reason about the relationship between
variables X and Y without the intrusion of variable Z.
B) allow one to focus upon micro variables by ignoring macro
variables.
C) allow one to focus upon macro variables by ignoring micro
variables.
D) determine whether X causes Y or vice versa.
7. Cuba is a command economy that suffered decline in
economic growth because of a cut in support from the
former Soviet Union when it collapsed. As a
consequence, Cuba:
A) experienced a shift outward in its production
possibilities curve.
B) experienced a shift inward in its production
possibilities curve.
C) moved along its existing production possibilities
curve.
D) went to a point inside its PPC.
16. Macroeconomics approaches the study of economics from
the viewpoint of:
A) the entire economy.
B) governmental units.
C) the operation of specific product and resource markets.
D) individual firms.
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17. Which is one of the four simplifying assumptions made in
the chapter about the construction of the production
possibilities model?
A) The state of technology is constantly changing.
B) The number of products produced is more than
two.
C) The economy is fully employed and is using
least-cost methods of production.
D) The quantities of all resources available to the
economy are not fixed, but are variable.
23.If an economy is operating at a point inside the production
possibilities curve, it indicates that:
A) society's resources are being poorly utilized.
B) the production decisions are made by
government.
C) unlimited resources must satisfy scarce desires
of people.
D) there is a scarcity of resources relative to human
wants.
24. Which of the following will not produce an outward shift
of the production possibilities curve?
A) an upgrading of the quality of a nation's human resources
B) the reduction of unemployment
C) an increase in the quantity of a society's labor force
D) the improvement of a society's technological knowledge
18. The production possibilities curve represents:
A) the maximum amount of labor and capital
available for production.
B) combinations of goods and services among
which consumers are indifferent.
C) maximum combinations of products available
with fixed resources and technology.
D) the maximum rate of growth of capital and labor
in an economy.
25. Which of the following concepts provides the basic
rationale for international trade?
A) increasing opportunity costs.
B) comparative advantage.
C) consumer sovereignty.
D) the law of supply.
19. If variables X and Y are positively correlated, this means
that:
A) X is the cause of Y .
B) Y is the cause of X.
C) causation necessarily exists, but we don't know whether X
or Y is the cause.
D) causation may or may not exist between X and Y.
26.Which statement is an economic rationale for the law of
increasing opportunity cost?
A) The economy is employing all of its available
resources.
B) Many economic resources are better at
producing one product than another.
C) In any economy, the state of technology is
changing and resources are variable.
D) The economy is achieving productive efficiency
by producing goods and services at the least
cost.
Production possibilities (alternatives)
A
B C
D
E
F
Capital goods
5 4
3
2
1
0
Consumer goods
0
5
9
12 14
15
20. Which of the following is a land resource?
A) a computer programmer
B) silicon (sand) used to make computer chips
C) a computer
D) a piece of software used by a firm
21. Which of the following lists includes only capital
resources (and therefore no labor or land resources)?
A) an ice arena; a professional hockey player; hockey
uniforms.
B) the owner of a new startup firm; a chemistry lab; a
researcher.
C) a hydroelectric dam; water behind the dam; power lines.
D) autos owned by a car rental firm; computers at the car
rental agency; the vans that shuffle rental
customers to and from the airport.
27. Refer to the above table. If the economy is producing at
production alternative C, the opportunity cost of
the tenth unit of consumer goods will be:
A) 4 units of capital goods. C) 3 units of capital goods.
B) 2 units of capital goods. D) 1/3 of a unit of capital goods.
22. A point inside the production possibilities curve is:
A) attainable and the economy is efficient.
B) attainable, but the economy is inefficient.
C) unattainable, but the economy is inefficient.
D) unattainable and the economy is efficient.
28. Refer to the above table. As compared to production
alternative D, the choice of alternative C would:
A) tend to generate a more rapid growth rate.
B) entail unemployment.
C) be unattainable.
D) tend to generate a slower growth rate.
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Production possibilities (alternatives)
A
B C
D
Capital goods
5 4
3
2
Consumer goods
0
5
9
12
E
1
14
40. exists if a producer can produce more of a good than all
other producers.
41. a producer has comparative advantage if he can produce a
good at lower opportunity cost than all other producers.
42. the percentage change in the CPI from one period to the
next.
F
0
15
29. Refer to the above table. A total output of 3 units of
capital goods and 4 units of consumer goods:
A) is irrelevant because the economy is capable of producing a
larger total output.
B) will result in the maximum rate of growth available to this
economy.
C) would involve an inefficient use of the economy's scarce
resources.
D) is unobtainable in this economy.
List the four Factors of Production.
43. __________________________________
44. __________________________________
45. __________________________________
46. __________________________________
30. Refer to the above table. For these data the law of
increasing opportunity costs is reflected in the fact that:
A) the amount of consumer goods that must be sacrificed to
get more capital goods diminishes beyond a
point.
B) larger and larger amounts of capital goods must be
sacrificed to get additional units of consumer goods.
C) the production possibilities data would graph as a straight
downsloping line.
D) the economy's resources are presumed to be scarce.
What are the two things that will shift the curve outward.
47.
48.
Match the following terms with the most appropriate
definition / description.
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Economic Growth
F. Specialization
G. Resources
31. the bottom of the business cycle
32. a period where real GDP is growing.
33. called factors of production
34. when firms focus their resources on production of goods
for which they have comparative advantage
35. the top of a business cycle; expansion has ended.
36. occurs when an economy’s production possibilities
increase.
37. the period where real GDP is falling
A.
B.
C.
D.
E.
Absolute Advantage
Comparative Advantage
Opportunity Cost
Scarcity
Inflation
38. the imbalance between limited productive resources and
unlimited human wants.
39. the value of the sacrifice made to pursue a course of
action.
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