AP Econ Unit 1. Name: Date: ID: A. Essay

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1 Name: Date: _ ID: A AP Econ Unit 1 Essay 1. (Module 4) The table below shows the production possibilities for the Theodorean and Dodgelandian economies. Both economies are based solely on the production of milk and toys. Assume the opportunity cost of producing milk and toys is constant in both nations. Theodorean Production Possibilities Dodgelandian Production Possibilities Quantity of Milk Quantity of Toys Quantity of Milk Quantity of Toys a. Which nation has absolute advantage in the production of milk? b. Which nation has the comparative advantage in the production of milk? Explain. c. If the nations of Theodore and Dodgelandia could trade, what product will be exported by Theodore? Explain. (5 points) 1

2 Multiple Choice Identify the choice that best completes the statement or answers the question. Figure 3-1: Guns and Butter 1. (Figure 3-1: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter: a. indicates you can have more butter and guns simultaneously. b. makes it clear that this economy experiences decreasing opportunity costs. c. involves a loss of 8 units of guns per period. d. involves a loss of 4 units of guns per period. e. is impossible because all economic resources are currently being employed. 2. Which of the following is an example of individual choice? a. The government announces plans to ban smoking in all Florida restaurants. b. Lauren spends her allowance on pillows for her bed. c. France decides to withhold funding to rebuild Iraq. d. Africa decides to accept U.S. aid for humanitarian efforts. e. The stock market collapse has reduced the wealth of many Americans. 2

3 Figure 3-10: Consumer and Capital Goods II 3. (Figure 3-10: Consumer and Capital Goods II) Technological improvements will likely: a. shift the production possibility curve inward to Curve 1. b. shift the production possibility curve outward to Curve 2. c. lead to increased unemployment. d. cause a movement from point C to point A. e. cause a movement from point B to point C. 3

4 Figure 3-9: Pears and Pistons 4. (Figure 3-9: Pears and Pistons) Suppose the economy is now producing only pears. The first piston, which is achieved at point T, would have an opportunity cost of tons of pears. a. 50 b. 150 c. 450 d. 950 e Which of the following would be a positive economic statement? a. Government has grown too large and should be reduced. b. There has been an increase in the rate of inflation. c. Government should be subject to the same rules as all other institutions. d. Women should be paid as much as men for the same work. e. Corporate CEO s are overcompensated and corrupt. 6. Macroeconomics involves the study of the: a. overall behavior of the economy. b. individual decision makers in the economy. c. different market structures that exist in the economy. d. cost and production decisions made by firms. e. regulation of firms within industries. 4

5 Figure 4-4: Alphaland and Omegaland 7. (Figure 4-4: Alphaland and Omegaland) If Omegaland specializes in the production of the good of its comparative advantage, it will produce: a. 800 radios. b. 1,600 radios. c. 800 tires. d. 1,200 tires. e. 1,200 radios 8. (Figure 4-4: Alphaland and Omegaland) If Alphaland and Omegaland specialize in the production of the good of their comparative advantage, the two nations together will produce tires and radios. a. 600; 800 b. 800; 1,200 c. 1,200; 1,600 d. 800; 600 e. 1,600; 1, All points inside the production possibility curve represent: a. efficient production points. b. inefficient production points. c. nonfeasible production points. d. economic growth. e. a shortage of economic resources. 10. The local Taco Hut charges the same price for everything on its menu: $3 will buy a taco, or a burrito, or nachos. You buy the taco and think that if you had not purchased the taco, you would have purchased the burrito. The opportunity cost of the taco is: a. the $3. b. the burrito. c. the $3 and the burrito. d. the $3, the burrito, and the nachos. e. the nachos. 5

6 11. An economy is said to have a comparative advantage if it: a. can produce more of all goods than another economy. b. can produce less of all goods than another economy. c. has the highest opportunity cost for producing a particular good. d. has the lowest opportunity cost for producing a particular good. e. has more economic resources than another country. 12. One of the issues of importance to macroeconomists is: a. the behavior of individuals and their allocation of income. b. how firms determine the profit maximizing level of output. c. understanding how living standards change over time. d. the behavior of individual markets. e. the regulation of monopolies. 13. The use of comparative advantage in international trade: a. is used only by larger countries. b. benefits all countries involved in trade. c. provides benefits to developed countries only. d. does not determine what goods countries should produce. e. allows underdeveloped countries to exploit the workers in developed countries. 14. Scarcity in economics means: a. the needs of people are limited. b. the wants of people are limited. c. there must be poor people in rich countries. d. shortages exist in nearly all markets. e. society is unable to produce all the goods and services we want with existing resources. 15. If the opportunity cost of manufacturing automobiles is lower in the United States than in Britain and the opportunity cost of manufacturing airplanes is higher in the United States than in Britain, then the United States will: a. export both airplanes and automobiles to Britain. b. import both airplanes and automobiles from Britain. c. export airplanes to Britain and import automobiles from Britain. d. import airplanes from Britain and export automobiles to Britain. e. neither import nor export goods to Britain. 16. Which of the following is most likely a macroeconomic question rather than a microeconomic question? a. Are prescription drug prices rising faster than the overall rate of inflation? b. Are consumers buying more bottled water and less fruit juice? c. Are salaries for nurses rising or falling? d. Should a tax be levied on each ton of carbon a factory emits? e. Is the national unemployment rate rising or falling? 17. As long as people have different, everyone has a comparative advantage in something. a. direct costs b. total benefits c. utility d. opportunity costs e. marginal benefits 6

7 18. If you decide to go to Cancun with your friends during spring break, you realize you cannot afford to go to Paris with your sister in the summer. This statement best represents the economic concept of how: a. the real cost of something is what you must give up to get it. b. decisions of how much to consume are made at the margin. c. markets usually move to equilibrium. d. there are gains from trade. e. government policies can change spending. 19. If the opportunity costs of production are constant, then the production possibility curve is: a. bowed out from the origin. b. bowed in toward the origin. c. a straight line. d. circular. e. a U-shaped curve. 20. If an economy is efficient, this means: a. all goods are produced at their maximum quantities. b. all opportunities to make people better off without making other people worse off have been taken. c. more resources have been used to produce specific consumer goods than producer goods. d. prices are the lowest they can possibly be. e. there is no role for the government in the marketplace. Figure 3-5: Tom s Production Possibilities 21. (Figure 3-5: Tom s Production Possibilities) In the figure, which point or points would represent (an) inefficient combination(s) of wine and wheat if Tom made that choice? a. A b. A and B c. C d. B and D e. C and D 7

8 22. Which of the following is an example of a normative statement? a. The rate of unemployment is 4%. b. A high rate of economic growth creates more jobs for the country. c. The federal government spends half of its budget on national defense. d. Everyone in America deserves to be covered by national health insurance. e. High school graduation rates in the U.S. are lower than they are in some European nations. 23. At the point at which it is currently producing, Britain must give up the production of 75 hats to produce 25 additional sweaters. The opportunity cost of producing 3 hats is sweater(s). a. 1 b. 3 c. 22 d. 28 e. 1/3 24. The production possibility curve illustrates that: a. the economy will automatically end up at full employment. b. an economy's productive capacity becomes more efficient over time. c. if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced. d. economic production possibilities have no limit. e. in a perfect world there is no scarcity. 25. The problem of determining what goods and services society should produce: a. exists because we can produce more than we need or want. b. exists because there are not enough resources to provide all the goods and services that people want to purchase. c. would not exist if all goods and services were scarce. d. would not exist if government owned all of the resources. e. exists in a market economy, but not in a command economy. 26. If a production possibility curve is a straight line, it tells us that the opportunity cost of producing one more unit of good X: a. is an increasing amount of good Y. b. is a decreasing amount of good Y. c. is equal to the inverse of the amount of good Y. d. is a constant amount of good Y. e. is equal to one more unit of Y. 27. The primary emphasis in macroeconomics is on: a. how firms set prices. b. the national economy. c. marginal analysis. d. bits and pieces of the economy. e. the employment of individual workers. 8