AP Macroeconomics Unit 1 Concept Flashcards

Front

If a country on its Production Possibility Curve (PPC) decides to produce more cars, what is the opportunity cost?

Back

The decrease in the production of computers.

Answer explanation

The opportunity cost of producing more cars is the decrease in the production of computers, as resources are limited and reallocating them to cars means less can be used for computers.

Front

A new technology is introduced that makes the production of both goods more efficient. How would this affect the Production Possibility Curve (PPC) of an economy?

Back

The PPC would shift outward.

Answer explanation

The introduction of a new technology increases efficiency in production, allowing more of both goods to be produced. This results in an outward shift of the Production Possibility Curve (PPC), indicating greater production capacity.

Front

Effect on equilibrium price and quantity of smartphones if consumer income increases and smartphones are a normal good.

Back

Equilibrium price and quantity will both increase.

Answer explanation

An increase in consumer income raises demand for normal goods like smartphones. This shift in demand leads to a higher equilibrium price and quantity, making the correct answer: equilibrium price and quantity will both increase.

Front

A government imposes a price ceiling on rental apartments below the current equilibrium price. What is the most likely outcome in the rental market?

Back

A shortage of rental apartments.

Answer explanation

A price ceiling set below the equilibrium price leads to a shortage because it makes renting apartments cheaper, increasing demand while discouraging supply. Thus, fewer apartments are available than needed.

Front

If the demand for a product is price elastic, what would be the effect of a price increase on the total revenue of the firm selling the product?

Back

Total revenue would decrease.

Answer explanation

If demand is price elastic, a price increase leads to a proportionally larger decrease in quantity demanded. Consequently, total revenue, which is price times quantity, would decrease.

Front

Consider a market where the supply curve is perfectly inelastic. If there is an increase in demand, what will happen to the equilibrium price and quantity?

Back

Equilibrium price will increase, and equilibrium quantity will remain unchanged.

Answer explanation

In a perfectly inelastic supply, quantity remains constant regardless of price changes. An increase in demand raises the equilibrium price, but the quantity supplied stays the same, leading to the correct answer: equilibrium price will increase, and quantity will remain unchanged.

Front

A country is considering reallocating resources from the production of consumer goods to capital goods. What is the long-term impact of this decision on the country's economic growth?

Back

Economic growth will increase.

Answer explanation

Reallocating resources to capital goods enhances production capacity and efficiency. In the long term, this leads to increased economic growth as the country can produce more goods and services.

Front

What does it indicate if a country is operating inside its Production Possibility Curve (PPC)?

Back

The country is not using all its resources efficiently.

Answer explanation

Operating inside the Production Possibility Curve (PPC) indicates that the country is not using all its resources efficiently, as it could produce more goods and services with better resource allocation.

Front

In the context of opportunity cost, which scenario best illustrates the concept?

Back

A student chooses to study for an exam instead of going to a movie.

Answer explanation

The scenario of a student choosing to study for an exam instead of going to a movie illustrates opportunity cost, as it highlights the trade-off between two alternatives, where the benefit of the movie is sacrificed for studying.

Front

How would an increase in the price of a substitute good affect the demand for a product?

Back

Demand for the product would increase.

Answer explanation

An increase in the price of a substitute good makes that substitute less attractive, leading consumers to seek alternatives. Consequently, the demand for the product in question would increase as more consumers switch to it.