AP Economics Unit 1 & 2 Review Questions. Fundamentals Economically speaking, why are choices necessary?

AP EconomicsAP EconomicsUnit 1 & 2 Review Unit 1 & 2 Review

QuestionsQuestions

FundamentalsFundamentals

Economically speaking, why are choices necessary?


Define opportunity cost


What is the difference between SCARCITY and SHORTAGE?


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


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


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


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


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


In the graph to follow…A) who has an absolute advantage in

shoes?B) who has the comparative advantage in

shoes?


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?


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?

Supply & DemandSupply & Demand

State the Law of Supply


Draw a correctly labeled graph showing a ________ in Demand.


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


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.


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.


If the cost of leather decreases …draw a correctly labeled graph showing

the effect on the S & D for shoes made from leather.


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.


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.


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


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


What does the Law of __________ state?


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


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?

Price ControlsPrice Controls

Draw a correctly labeled graph showing an effective price floor


Draw a correctly labeled graph showing an effective price ceiling


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

ElasticityElasticity

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?


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


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


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?


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


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


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


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


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]

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AP Economics Unit 1 & 2 Review Questions. Fundamentals Economically speaking, why are choices necessary?