AP Microeconomics Unit 1: Basic Economic Concepts Practice Exam

1. Assume an economy is currently operating below full employment. If the government and central bank take no policy actions, how will nominal wages and the short-run aggregate supply (SRAS) curve change in the long run?

2. Which of the following Federal Reserve actions would most likely reduce the unemployment rate in the short run?

3. Assume the market for corn is initially in equilibrium. Corn is a primary input for the production of ethanol (a fuel substitute for oil), and it is also used as livestock feed. If the price of oil increases significantly while, simultaneously, a new pest infestation destroys a significant portion of the corn harvest, what will happen to the equilibrium price and quantity of corn?

4. Which of the following scenarios describes a movement along the demand curve for a specific good, rather than a shift of the demand curve?

5. In the market for laptop computers, a technological advancement reduces the cost of producing screens. Concurrently, consumers expect the price of laptops to increase significantly next month due to upcoming trade tariffs. What is the immediate effect on the current equilibrium price and quantity of laptops?

6. Country Alpha has a production possibilities curve (PPC) that is a straight line connecting 100 units of Good X on the horizontal axis and 50 units of Good Y on the vertical axis. What is the opportunity cost of producing one additional unit of Good X?

7. The table below shows the maximum potential production of Trucks and Cars for a factory given its current resources. Combination | Trucks | Cars --- | --- | --- A | 0 | 50 B | 1 | 45 C | 2 | 35 D | 3 | 20 What is the opportunity cost of producing the second truck (moving from Combination B to Combination C)?

8. If a production possibilities curve (PPC) is bowed outward (concave) relative to the origin, what does the changing slope of the curve indicate as production moves along the curve from left to right?

9. An economy's production possibilities frontier is defined by the linear equation $Y = 120 - 3X$, where Y represents units of Food and X represents units of Clothing. What is the opportunity cost of producing the 10th unit of Clothing?

10. A bank with zero excess reserves receives a new cash deposit of $1,000. The required reserve ratio is 20%. The bank lends out the entire allowable amount to a borrower who pays a contractor. The contractor then deposits the full amount into a different bank. At this specific point in time (after the contractor's deposit), by how much has the M1 money supply increased?

11. [Skill: 3.A | Topic: 1.6] A rational consumer spends their entire weekly budget on two goods: movie tickets and popcorn. The price of a movie ticket is 10 dollars, and the price of a bag of popcorn is 5 dollars. At the consumer's current level of consumption, the marginal utility of the last movie ticket purchased is 50 utils, and the marginal utility of the last bag of popcorn purchased is 40 utils. To maximize total utility, how should the consumer adjust their consumption?

12. [Skill: 2.A | Topic: 1.5] Sarah is considering whether to spend 3 hours watching a movie or working at her part-time job. The following information is available: - Movie ticket price: 15 dollars - Popcorn and soda: 10 dollars - Hourly wage at job: 12 dollars per hour - Sarah’s total benefit (utility) from watching the movie: 70 dollars Based on the information provided, which of the following statements is correct regarding Sarah’s decision to watch the movie?

13. [Skill: 2B | Topic: 1.5] An individual is deciding how to spend their evening and has three mutually exclusive options: - Option 1: Work an extra shift and earn 40 dollars in wages. - Option 2: Attend a movie, which costs 15 dollars for a ticket and provides a total benefit valued at 60 dollars. - Option 3: Stay home and read, which costs 0 dollars and provides a total benefit valued at 30 dollars. Based on cost-benefit analysis, which of the following correctly identifies the individual's optimal choice and the total opportunity cost of that choice?

14. [Skill: 2.C | Topic: 1.4] The table below shows the maximum amount of Grain or Steel that Country A and Country B can produce using the same amount of resources. | Country | Grain (units) | Steel (units) | | :--- | :--- | :--- | | Country A | 40 | 20 | | Country B | 30 | 5 | Based on the data in the table, which of the following statements is true regarding specialization and the terms of trade?

15. [Skill: 2.C | Topic: 1.4] The table below shows the maximum amount of wheat (in bushels) or computers (in units) that Country Alpha and Country Beta can produce using the same amount of resources. | Country | Wheat (bushels) | Computers (units) | | :--- | :--- | :--- | | Alpha | 40 | 10 | | Beta | 30 | 15 | Based on the data in the table, which of the following terms of trade for 1 computer would be mutually beneficial for both countries?

16. In Country Alpha, a central planning agency determines the production quotas for steel and agricultural goods and sets the prices for these items. In Country Beta, the production of goods is determined by the profit-seeking behavior of individual entrepreneurs and the purchasing decisions of consumers. Which of the following best describes how these two countries address the fundamental economic question of 'what to produce'?

17. [Skill: 1.A | Topic: 1.1] A research firm develops a new chemical process that allows factories to filter pollutants more effectively. While the physical filters and the labor required to install them are limited in supply, the mathematical chemical equation describing the process can be shared and used by any number of factories simultaneously without being depleted. Which of the following best characterizes the scarcity of these resources according to economic principles?

18. [Skill: 1.A | Topic: 1.1] A city government is deciding how to use a vacant ten-acre plot of land. The council is considering building a public park, a new elementary school, or a municipal parking garage. Which of the following statements best illustrates the economic concept of scarcity in this scenario?

19. [Skill: 1.A | Topic: 1.1] A local government has a finite budget and must choose between allocating funds to construct a new highway or expanding the city's public library system. This necessity to choose between competing objectives most directly illustrates which of the following economic principles?

20. [Skill: 3.A | Topic: 1.4] The table below shows the maximum amount of two goods, Wheat and Corn, that Country A and Country B can produce using the same amount of resources. | Country | Wheat (bushels) | Corn (bushels) | | :--- | :--- | :--- | | Country A | 100 | 200 | | Country B | 150 | 450 | Based on the data in the table, which of the following statements is true regarding absolute advantage, comparative advantage, and the terms of trade?

21. The fundamental problem of economics is best described as

22. A society that allows the market to determine what is produced, how it is produced, and who gets it is using which type of economic system?

23. A high school student is deciding between going to a university, which costs 25,000 per year for tuition and fees, and taking a full-time job that pays 30,000 per year. What is the student's opportunity cost of attending university for one year?

24. Marginal analysis is most useful for

25. Which of the following is an example of a factor of production known as physical capital?

26. Which of the following is true regarding point C?

27. A movement from point A to point B along the production possibilities curve illustrates which of the following?

28. Which of the following would be required for this economy to be able to produce at point D?

29. The bowed-out shape of the production possibilities curve shown is due to

30. Assume the economy is operating at point B. A technological innovation that significantly improves the efficiency of producing consumer goods, but not capital goods, would cause the production possibilities curve to

31. What is the opportunity cost of producing one car in Japan?

32. Based on the data in the table, which of the following statements about absolute advantage is correct?

33. Based on the data, which country has a comparative advantage in the production of computers, and why?

34. If the two countries specialize and trade, which of the following is true?

35. Which of the following represents a mutually beneficial term of trade between Japan and Brazil?

36. What is the marginal benefit of studying for the third hour?

37. What is the marginal cost of studying for the fourth hour?

38. According to marginal analysis, a rational student will study for how many hours?

39. If the student has already studied for two hours and is deciding whether to study for a third hour, the cost of the first two hours should be considered a

40. The key difference between a command economy and a market economy lies in

41. If an economy can produce two goods, X and Y, and the resources used to produce them are perfectly substitutable, the production possibilities curve would be

42. The main difference between comparative advantage and absolute advantage is that comparative advantage is based on

43. Which of the following events would be most likely to cause an economy's production possibilities curve to shift inward?

44. A rational consumer with a fixed budget will maximize their total utility by purchasing a combination of goods such that the

45. An entrepreneur is considering starting a new business. The explicit costs are 100,000 per year. The business is projected to earn revenues of 120,000 per year. The entrepreneur's next best alternative is to work for another company, where she would earn a salary of 30,000 per year. What is the entrepreneur's economic profit?