AP Economics Unit 1 & 2 Review Questions

Economically speaking, why are choices necessary? Fundamentals

Define opportunity cost Fundamentals

What is the difference between SCARCITY and SHORTAGE? Fundamentals

What are the FOUR factors of production we defined in class? Fundamentals

What are the 3 essential questions that must be answered by any economic system? Fundamentals

Draw a correctly labeled PPF, showing the trade-off between capital goods and consumer goods. Fundamentals

How can specialization and trade increase total output, and therefore increase total wealth? Fundamentals

Can a country have an absolute advantage in the production of both goods? Can they have a comparative advantage in both goods? Be able to explain why Fundamentals

Fundamentals In the graph to follow… A) who has an absolute advantage in shoes? B) who has the comparative advantage in shoes? Fundamentals

In a given amount of time, if the United States can produce either 10 units of corn or 5 units of wheat… and Brazil can produce either 4 units of corn or 3 units of wheat, what is the United States’ opportunity cost for producing one unit of wheat? Fundamentals

If the United States’ opportunity cost for producing a unit of wheat is 2 units of corn, then how much corn must Brazil offer the United States in order for them to consider voluntarily trading wheat for corn? Fundamentals

State the Law of Supply Supply & Demand

Draw a correctly labeled graph showing a ________ in Demand. Supply & Demand

Under what circumstances would an increase in income cause a decrease in quantity demanded? Supply & Demand

If the US government passes additional regulations on air travel … draw a correctly labeled graph showing the effect on the S & D for American Airlines. Supply & Demand

Supply & Demand If the price of good X rises … draw a correctly labeled graph showing the effect on the S & D for any substitute of good X. Supply & Demand

Supply & Demand If the cost of leather decreases … draw a correctly labeled graph showing the effect on the S & D for shoes made from leather. Supply & Demand

If the price of leather jackets is expected to rise next week … draw a correctly labeled graph showing the effect on the S & D for leather jackets today. Supply & Demand

If the US government creates a subsidy on the production of avocados … draw a correctly labeled graph showing the effect on the S & D for the US avocado market. Supply & Demand

If the supply of a good increases, how will this change (a) price, (b) quantity ? Supply & Demand

If both supply and demand decrease, how will this effect (a) price, (b) quantity ? Supply & Demand

What does the Law of __________ state? Supply & Demand

What does TR stand for, and what is the equation use to calculate TR? Supply & Demand

Draw a correctly labeled graph for pencils Draw a correctly labeled graph for pencils. If the only change is an increase in the price charged for pencils, why does this cause a change in Qs and Qd but not a change in S or D? Supply & Demand

Draw a correctly labeled graph showing an effective price floor Price Controls

Draw a correctly labeled graph showing an effective price ceiling Price Controls

Why is a price ceiling only effective if it is set BELOW the equilibrium? Price Controls

If the price of printers increases from $150 to $200, and the quantity demanded of ink decreases from 40 to 20, what is the elasticity, and what does it say about the two goods? Elasticity

If income increases by 2.5% and the quantity demanded decreases 10%, then is the good normal or inferior? Elasticity

If the price of light bulbs increases by 15% and the demand for bubblegum remains unchanged, what is the relation between those two goods? Elasticity

If Wendy’s lowers their prices by 5%, and all other variables are held constant, the result is an increase in total revenue. What does this tell you about Wendy’s’s elasticity? Elasticity

A good’s price elasticity of demand must be between ___ and ___ to be considered relatively inelastic. Elasticity

A good’s income elasticity of demand must be between ___ and ___ for the good to be considered normal. Elasticity

If the equilibrium price for a Big Mac is $2 If the equilibrium price for a Big Mac is $2.49, at what prices would a surplus occur? Supply & Demand

If Pepsi and Coke are substitutes, then their Cross Elasticity of Demand (Ec,p) must _______________. Elasticity

Because of the law of increasing costs, in the real world Production Possibility Curves are not usually straight, but rather … [draw what the PPF would look like on a correctly labeled graph comparing good A and good B] Fundamentals