AP Micro Review Exam

A decrease in the price of machinery will likely have which result?

• The demand for labor will increase.

• The demand for labor will decrease.

• The supply of machinery will decrease.

• Firms will hire to the point where MRP = W.

Answer explanation

Choice A is the best answer because the price of

machinery is a factor of production. If the machinery used in the production of a product decreases in price, then firms may purchase more at lower prices, which would increase the need for labor.

What will most likely result if the price of apples decreases?

• The quantity of apples demanded will increase.

• The supply of apples will decrease.

• The demand for apples will increase.

• The quantity of apples supplied will decrease.

Answer explanation

According to the law of demand, all else being

equal, when the price of a good or service increases, the quantity demanded decreases. Choice A is the best answer because it is the inverse of the question being asked.

Which of the following could explain the movement from point B to point A?

• An increase in the price of the good

• An increase in consumer income

• An increase in the price of a complementary good

• An increase in the price of a substitute good

Answer explanation

The graph represents the inverse relation stated

in the law of demand. The graph represents movement from Point B to Point A. This illustrates that the quantity demanded decreased due to an increase in price.

All of the following are factors that contributed to Demand 1 shifting to Demand 2 EXCEPT

• an increase in consumer income

• a decrease in price of a substitute good

• an increase in the number of buyers in a market

• consumers expect the price of the good to increase in the future

Answer explanation

The movement from D1 to D2 represents an

increase in demand. Choice B is the best answer because a decrease in the price of a substitute good would decrease demand for this product and increase demand for the substitute good.

Deirdre has one free hour to practice the piano for an upcoming school concert or work at the library for $7 per hour or babysit her neighbor’s 12-year-old son for $10 per hour. She chooses to practice the piano. What is the opportunity cost of practicing the piano?

• The opportunity cost would be $17 because she chose not to participate in these activities.

• Without knowing the marginal value of practicing the piano, there is no way of knowing the true opportunity cost.

• The opportunity cost would be $20 because it is necessary to calculate one additional hour of babysitting to make it profitable.

• The opportunity cost would be $10 because it would be the most profitable alternative.

• The opportunity cost would be $3 because it is the monetary difference between two alternative choices.

Answer explanation

Deirdre can make only one decision regarding how she will spend her time. An opportunity cost represents the next best thing missed out on. In this case, it is missing out on the $10/hour babysitting job and not the

$7/hour library job. All other choices are incorrect because they incorporate the two choices, whereas opportunity costs represent only the next best alternative.

Which two points would best represent economic

growth?

• From A to D

• From D to C

• From A to B

• From E to C

• From E to B

Answer explanation

The production possibilities curve represents the maximum output between two goods. It also reflects the opportunity costs between these two goods because resources are scarce. Any point along the curve is the maximum output producing both of the goods, and therefore is an attainable and efficient use of resources. Economic growth is represented by a rightward shift of the production possibilities curve. Choice E is the best answer because Point E represents an attainable and efficient use of resources and Point B represents a point

of economic growth.

A country is said to have a comparative advantage

over another country when

• it can produce a good at a lower opportunity cost than another country

• it can produce a good using fewer resources per unit

  of output than another country

• there is a higher degree of specialization and division of labor

  compared to another country

• when comparing each country’s production possibilities frontiers, one country is operating at maximum efficiency and

  output

• one country’s production possibilities frontier is shifted farther to the right compared to another country’s production possibilities frontier

Answer explanation

Trade will exist between two countries if there is a comparative advantage between the two countries, or each country is producing its good at a lower opportunity cost than the other.

If there is an earthquake which destroyed the buildings and crops in a country, the Production Possibility Curve will shift

• To the left

• To the right

• Parallel to the right

• Parallel to the left

Point D can be achievable in the long run.

• True

• False

• Not enough information

• Are you kidding me

What is the opportunity cost of moving from point B to C on the curve?

• 30 tons of wheat

• 30 tons of steel

• 5 tons of wheat

• 5 tons of steel