AP Microeconomics Unit 1 Review

Scarcity is best defined as

• the difference between limited wants and limited economic resources.

• the difference between the total benefit of an action and the total cost of that action.

• the difference between unlimited wants and limited economic resources.

• the opportunity cost of pursuing a given course of action.

• the difference between the marginal benefit and marginal cost of an action.

Which of the following statements describes an economy confronting scarcity?

• If more of one good is produced, less of another good must be produced.

• An economy can produce a limitless amount of all goods.

• All individuals are able to satisfy their consumption desires.

• Scarcity is eliminated by government provision of goods.

• Scarcity only exists as a problem when there is more than one good to produce.

True or False- Economics is the study of how to allocate scarce resources among competing ends.

• True

• False

Assume an economy is using all its available resources efficiently to produce only two goods, X and Y. As more of good X is produced, what happens to the production of good Y?

• The production of good Y also increases.

• More resources will need to be devoted to producing good Y.

• Less of good Y is produced as resources move from producing good Y to producing good X.

• The economy can only produce more of good X if there is more labor available.

• There will be no loss of good Y produced.

Susan and John both sew t-shirts in a small factory. Using the same resources, John can sew twelve t-shirts and Susan can sew nine t-shirts in one day. Which of the following can be concluded from the given information?

• John has a higher opportunity cost of sewing t-shirts than Susan does.

• A. Susan has an absolute advantage in sewing t-shirts.

• Susan has a comparative advantage in sewing t-shirts.

• John has a comparative advantage in sewing t-shirts.

• John has an absolute advantage in sewing t-shirts.

As a factor of production, capital refers to the

• money available to start a business

• stocks and bonds issued by businesses to raise funds

• financial investment of businesses

• currency in circulation and deposits in financial institutions

• tools and machinery used to produce goods and services

In contrast to a market economy, a command economy relies on which of the following?

• The private sector in deciding what goods will be produced

• Private ownership of resources

• Profits as incentives to make choices

• Supply and demand to determine prices

• The government to allocate resources

A linear production possibilities curve indicates which of the following?

• Constant opportunity costs

• Decreasing opportunity costs

• Increasing opportunity costs

• Diminishing marginal returns

• Labor-intensive production

Using the same amount of time and resources, Jack can assemble either 10 bikes or 5 computers, whereas Sam can assemble either 5 bikes or 5 computers. Based on the data, which of the following statements is correct?

• Sam has an absolute advantage in assembling bikes.

• Sam has an absolute advantage in assembling computers.

• Sam has a comparative advantage in assembling bikes.

• Jack has a comparative advantage in assembling bikes.

• Jack has a comparative advantage in assembling both bikes and computers.

According to the graph above, if a country is currently producing at point X, the opportunity cost of producing another consumer good is

• 20 capital goods

• more than 20 capital goods

• fewer than 20 capital goods

• 20 consumer goods

• fewer than 20 consumer goods