AP Macroeconomics Unit One Study Guide
Name: ______Date: ______
Section 1 – State Economics EOCT Content Descriptors in Question Format
1. Why is scarcity important to the study of economics?
2. What are two examples of limited resources and two examples of unlimited resources?
3. What is the difference between an economic want and an economic need?
4. What are land/natural resources? Give two examples.
5. What are labor/human resources? Give two examples.
6. What are physical capital resources? Give two examples.
7. What are human capital resources? Give two examples.
8. What is the role of entrepreneurs in production and distribution in the economy?
9. What is another term for productive resources?
10. What is an allocation strategy?
11. Give the six main allocation strategies and an example of a good or service allocated that way in the USA.
12. How does unequal distribution of the factors of production affect regions and nations?
13. What is the difference between trade-offs and opportunity cost?
14. Why do people, companies, and countries specialize in the production of certain goods and services?
15. What do economists believe about voluntary exchange and trade?
16. What is an economic system?
17. Describe the main characteristics/advantages/disadvantages of a market economic system.
18. Describe the main characteristics/advantages/disadvantages of a command economic system.
19. Why do most countries have mixed economic systems?
20. List the three basic economic questions all societies must answer. All tell how they are answered in a command economy versus a market economy.
Three Basic Economic Questions / Answers in a Market Economy / Answers in a Command Economy/ a.
/ a.
21. List the social economic goal associated with each part of the table below:
a. How well we use our factors of production: / b. How much our GDP changes over time: / c. How fair our economy is:d. How much choice we have in making decisions for ourselves: / e. How well we are protected from unexpected changes in the economy: / f. How predictable our employment levels and prices will be over time:
Section II – Application Questions
1. For something to be considered scarce, it must be both limited and desirable. For each of the following items, indicate whether it is scarce or not scarce. For each item that is not scarce, state whether it is undesirable or unlimited.
a. Electricity –
b. Trash –
c. Water –
d. Knowledge –
e. People –
2. Which of the following items would NOT be considered scarce?
A Petroleum in Japan, a country with no natural oil reserves
B Petroleum in Saudi Arabia, a country large oil reserves
C A rare disease such as polio
D Free sandwiches given away by a local restaurant
3. Carl is considering attending a concert instead of studying. The ticket price of the concert is$35. He estimates that the cost of driving to the concert and parking there will total an additional $20. In order to attend the concert, Carl's opportunity cost of attending the concert is:
4. A teachers' union negotiates a contract that dramatically increases benefits for its members. How would this influence the opportunity cost for a teacher who was considering giving up their career in education to pursue a career in broadcasting?
5. Give the meaning of each of the points found on the PPC below. Tell the opportunity cost of moving from A to B. Tell how to move the curve outward to point C. Explain what could happen in an economy to cause the curve to move inward to D.
6. Please give the absolute advantage, comparative advantage, and opportunity cost for the following chart:
a. Input or Output?
b. Absolute in Shoes
c. Absolute in Cloth
d. Opportunity Cost of producing Shoes in India
e. Opportunity Cost of producing Cloth in India
f. Opportunity Cost of producing Shoes in China
g. Opportunity Cost of producing Cloth in China
h. Comparative in Shoes
i. Comparative in Cloth
7. A teenager named Rosa started a petwalking business. She found customers and hired workers for her business. What factor of production (productive resource) does Rosa represent?
8. If your goal is to earn more money during your lifetime, what is the most likely to have the greatest positive impact on your lifetime earnings?
9. Two advantages of a market economy, as compared with a command economy, are
A more security and more equity.
B more control over prices and wages.
C more freedom and more efficiency.
D more limits on profits and more public goods.
11. What kind of economy do most nations in the world have today?
A command
B market
C mixed
D traditional
12. Prices act as signals in the market because
A prices indicate to sellers the types of goods and services to offer for sale.
B prices can determine dividends for businesses.
C high prices for goods and services signal a healthy economy.
D entrepreneurs become motivated as prices rise.
13. In a market economy, how are the basic economic questions of what, how, and for whom to produce answered?
A By using a nation's social customs and traditions.
B By using a combination of traditional and command economics.
C By the individuals and firms in the nation's marketplace.
D By the nation's federal and/or local governments.
14. In the country of Plutopia, it takes 5 hours of labor to make a bicycle and 6 hours of labor to produce a computer. In the nearby country of Legosa, it takes 4 hours of labor to make a bicycle and 4 hours of labor to produce a computer. In terms of labor on these identical goods, which answer choice describes the situation accurately?
A. Plutopia has an absolute advantage in both bicycle and computer production.
B. Legosa has an absolute advantage in both bicycle and computer production.
C. Legosa has an comparative advantage in both bicycle and computer production.
D. Legosa has an comparative advantage in bicycle production.
15. Which of the following statements is NOT an argument in support of free trade?
A. Free trade increases the variety of goods consumers can buy.
B. Free trade has the potential to benefit all nations.
C. Free trade allows nations to consume outside of their production possibilities curves.
D. Free trade allows a country to be self sufficient.
18. Define the Law of Demand
19. Define the Law of Supply
20. Give two criteria that must be met to have “demand” for a good, service, or factor of production.
21.Define each of the following and explain the relationship to the demand curve.
a. Income effect
b. Substitution effect
c. Diminishing Marginal Utility
22. Explain the difference between a change in demand and a change in quantity demanded. Graph these two situations:
23. Draw two graphs. On the first, graph a change in quantity supplied and, on the second, graph a change in supply.
24. List five determinants of demand and five determinants of supply.
Demand / Supply25. When shifting supply or demand, an increase always goes to the ______.
26. When shifting supply or demand, a decrease always goes to the ______.
27. How does a change in consumer income effect demand for a product? What is the exception to this rule? Please provide two graphs and example of this rule.
28. How will the following changes affect the market price of potato chips (assuming that the market is initially in equilibrium)? In each case, DRAW what happens to the demand and/or supply curves and, as result, circle what happens to the equilibrium price and quantity. Indicate the determinant governing the shift.
(a) The price of corn chips goes down. / (b) A new machine harvests potatoes more quickly and cheaply.Circle One:
Ep: á ; â
Eq: á ; â
Qs: á ; â
Qd: á ;â / Circle One:
Ep: á ; â
Eq: á ; â
Qs: á ; â
Qd: á ;â
(c) The price of onion dip rises. / (d) In December, producers expect the price of potato
chips to rise during the week before the Super Bowl.
Circle One:
Ep: á ; â
Eq: á ; â
Qs: á ; â
Qd: á ;â / Circle One:
Ep: á ; â
Eq: á ; â
Qs: á ; â
Qd: á ;â
29. Define, graph, and give an example of a price floor. Label the Qs and Qd. Tell whether there is a shortage or surplus
30. Define, graph, and give an example of a price ceiling. Label the Qs and Qd. Tell whether there is a shortage or surplus.
31. Use the following table to answer the questions.
a. In this market, $6.00 is the ______.
b. In this market, at a price of $2.00, a ______of ______units exists.
c. In this market, at a price of $8.00, a ______of ______units exists.
32. Use the graph to the left for a-c.
a. In this market, $.75 is the ______.
b. In this market, at a price of $.25, a ______of ______units exists.
c. In this market, at a price of $1.25, a ______of ______units exists.
33. Define price elasticity of demand:
34. List three main determinants of elasticity:
a.
b.
c.
50. Assume the Uhry Theater will seat a maximum of 425 people and students plan to hold two sold out stunt night performances.
a) Graph the market for stunt night tickets at the Uhry Theater.
b) Imagine a rumor goes around school that one of the most popular seniors plans to streak at the Saturday night performance. Graph the effect of the rumor on the demand for stunt night tickets on your graph from part (a). Indicate the change to the each of the following beside each Roman numeral:
i. The price of tickets ______
ii. The quantity of tickets sold ______
c) Druid Hills High School, in which the Uhry Theater is located, institutes a binding price ceiling on stunt night tickets. Graph where the price ceiling would be set using your graph from part (a). Tell the impact of the ceiling on each of the following beside the appropriate Roman numeral.
i. The quantity of tickets demanded ______
ii. The quantity of tickets supplied in the short run. ______
d) Do you think everyone who attends stunt night will pay the ceiling price set by Druid Hills High School? Why or why not?