AP ECONOMICS CHAPTER 1 STUDY GUIDE



1. One major feature of the economic perspective is:

A) that scarcity is more important than choice.

B) that costs are more important than benefits.

C) the assumption of rational self-interest by individuals.

D) the recognition of economic resources in the economy.

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.

3. Another description for ceteris paribus is:

A) other things equal.

B) loaded terminology.

C) the fallacy of composition.

D) post hoc, ergo propter hoc.

4. 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.

5. Clara states that "there is a high correlation between the level of people's education and the level of their income." Ellie replies that the correlation occurs because "more education is the best way to earn more income in this country."

A) Both Clara's and Ellie's statements are positive.

B) Both Clara's and Ellie's statements are normative.

C) Clara's statement is normative and Ellie's statement is positive.

D) Clara's statement is positive and Ellie's statement is normative.

6. The post hoc, ergo propter hoc fallacy consists of:

A) jumping to conclusions from an inadequate number of cases.

B) inferring causality from chronological sequence.

C) arguing for or against the person rather than the position being supported.

D) using an example to "prove" a different point.

7. From an economic perspective, when consumers leave a fast-food restaurant because the lines to be served are too long, they have concluded that the:

A) marginal cost of waiting is less than the marginal benefit of being served.

B) marginal cost of waiting is greater than the marginal benefit of being served.

C) management is exhibiting irrational behavior by not maximizing profits.

D) management is making an assumption that other things are equal.

8. If two sets of data are inversely related they will always graph as:

A) a straight line. B) a downsloping line. C) an upsloping line. D) parallel lines.

Use the following to answer questions 9-10:

Answer the next question(s) on the basis of the following five data sets wherein it is assumed that the variable shown on the left is the independent variable and the one on the right is the dependent variable. Assume in graphing these data that the independent variable is shown on the horizontal axis and the dependent variable on the vertical axis.

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9. Refer to the above data sets. The variables are directly related in:

A) all five data sets.

B) in none of the data sets.

C) in data sets 1, 2, and 3 only.

D) in data sets 1, 2, and 5 only.

10. Refer to the above data sets. The equation for data set 3 is:

A) P = 90 - .5N .

B) P = 90 + .5N .

C) P = .5N .

D) P = 40 + .5N .

E) P =

11. 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. 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.

13. With productive efficiency:

A) the state of technology, or methods used to produce output, constantly change.

B) the available supplies of factors of production are variable in quantity and quality.

C) there is production of any particular mix of goods and services in the least costly way.

D) there is production of that particular mix of goods and services most wanted by society.

14. 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.

15. 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.

(The following economy produces two products.)

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16. Refer to the above table. A change from possibility C to B means that:

A) 1 unit of steel is given up to get 75 units of wheat.

B) 2 units of steel are given up to get 75 units of wheat.

C) 1 unit of steel is given up to get 15 more units of wheat.

D) 2 units of steel are given up to get 15 more units of wheat.

17. Refer to the above table. In moving from possibility C to D, the cost of a unit of steel in terms of a unit of wheat is:

A) 10. B) 20. C) 25. D) 30.

18. Refer to the above table. A change from possibility B to C means that:

A) 10 units of wheat are given up to get one more unit of steel.

B) 15 units of wheat are given up to get one more unit of steel.

C) 15 units of wheat are equal to one unit of steel.

D) 75 units of wheat are equal to one unit of steel.

19. 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.

20. 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.

21. If economic resources are perfectly shiftable between the two products shown on a production possibilities graph:

A) the economy will always be at full employment.

B) more of one product can be produced without producing less of the other product.

C) the production possibilities curve would be a straight line.

D) the two products are of equal value to the econ.

22. 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.

23. 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.

24. 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.

25. Allocative efficiency means that:

A) the law of increasing opportunity costs has reached a maximum.

B) the least costly methods are being used to produce a product.

C) resources are being devoted to the production of products most desired by society.

D) the amount of other products which must be sacrificed to obtain production of a given product is at a minimum.

26. Suppose there are two economies, Xenon and Yantel, which have the same production possibilities curves and are on the same point on each curve. If Xenon then decides to devote more resources to investment goods relative to consumer goods compared to Yantel, then we would most likely expect:

A) Xenon to realize a greater shift outward in its future production possibilities curve compared to the shift for Yantel.

B) Yantel to realize a greater shift outward in its future production possibilities curve compared to the shift for Xenon.

C) Yantel to increase its current production of consumer goods and its current production possibilities curve to shift inward.

D) there would be no shift in the current or future production possibilities curve for Xenon or Yantel; there would only be a difference in the current composition of national output between consumer and investment goods.

27. 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 production possibilities curve.

28. In the circular flow model, households:

A) buy products and resources.

B) sell products and resources.

C) buy products and sell resources.

D) sell products and buy resources.

29. The simple circular flow model shows that workers, entrepreneurs, and the owners of land and capital offer their services through:

A) product markets.

B) resource markets.

C) employment agencies.

D) business firms.

30. Markets in which firms sell their output of goods and services are called:

A) resource markets.

B) product markets.

C) command markets.

D) mixed markets.

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