Ap Economics Chapter 1 Study Guide

1. One major feature of the economic perspective is: 7. From an economic perspective, when consumers leave a A) that scarcity is more important than choice. fast-food restaurant because the lines to be served are B) that costs are more important than benefits. too long, they have concluded that the: C) the assumption of rational self-interest by A) marginal cost of waiting is less than the individuals. marginal benefit of being served. D) the recognition of economic resources in the B) marginal cost of waiting is greater than the economy. marginal benefit of being served. C) management is exhibiting irrational behavior by 2. When an economist states that "there is no free not maximizing profits. lunch," the economist means that: D) management is making an assumption that other A) the marginal cost is greater than the marginal things are equal. benefit. B) the marginal benefit is greater than the marginal 8. If two sets of data are inversely related they will cost. always graph as: C) there is a foregone opportunity from resource A) a straight line. B) a downsloping line. C) an use. upsloping line. D) parallel lines. D) there is a tradeoff between cost and benefit.

3. Another description for ceteris paribus is: Use the following to answer questions 9-10: A) other things equal. B) loaded terminology. Answer the next question(s) on the basis of the following five C) the fallacy of composition. data sets wherein it is assumed that the variable shown on the D) post hoc, ergo propter hoc. left is the independent variable and the one on the right is the dependent variable. Assume in graphing these data that the 4. A tradeoff exists between two economic goals, X and independent variable is shown on the horizontal axis and the Y. This tradeoff means that: dependent variable on the vertical axis. A) X causes Y. B) X and Y are equal. (1) (2) (3) (4) (5) C) getting more of X requires getting more of Y. J K L M N P R T U V D) getting more of X requires getting less of Y. 0 10 0 -15 100 40 0 -15 0 0 40 20 30 -5 80 50 20 -25 5 10 5. Clara states that "there is a high correlation between 80 30 60 5 60 60 40 -35 10 20 the level of people's education and the level of their 120 40 90 15 40 70 60 -45 15 30 income." Ellie replies that the correlation occurs 160 50 120 25 20 80 80 -55 20 40 because "more education is the best way to earn more 200 60 150 35 0 90 100 -65 25 50 income in this country." A) Both Clara's and Ellie's statements are positive. 9. Refer to the above data sets. The variables are B) Both Clara's and Ellie's statements are directly related in: normative. A) all five data sets. C) Clara's statement is normative and Ellie's B) in none of the data sets. statement is positive. C) in data sets 1, 2, and 3 only. D) Clara's statement is positive and Ellie's statement D) in data sets 1, 2, and 5 only. is normative. 10. Refer to the above data sets. The equation for data set 6. The post hoc, ergo propter hoc fallacy consists of: 3 is: A) jumping to conclusions from an inadequate A) P = 90 - .5N . number of cases. B) P = 90 + .5N . B) inferring causality from chronological sequence. C) P = .5N . C) arguing for or against the person rather than the D) P = 40 + .5N . position being supported. E) P = D) using an example to "prove" a different point.

(The following economy produces two products.)

11. The basic economic problem is the combined Production Possibilities existence of: Product A B C D E F A) inflation and unemployment. Steel 0 1 2 3 4 5 B) economic freedom and income equality. Wheat 100 90 75 55 30 0 C) scarce economic resources and unlimited economic wants. 16. Refer to the above table. A change from possibility D) growing populations and the depletion of natural C to B means that: resources. A) 1 unit of steel is given up to get 75 units of wheat. 12. In every economic system, choices must be made B) 2 units of steel are given up to get 75 units of because resources are: wheat. A) infinite, but economic wants are finite. C) 1 unit of steel is given up to get 15 more units of B) finite, but economic wants are insatiable. wheat. C) unlimited, but economic wants are limited. D) 2 units of steel are given up to get 15 more units D) limited, and so are economic wants. of wheat.

13. With productive efficiency: 17. Refer to the above table. In moving from possibility A) the state of technology, or methods used to C to D, the cost of a unit of steel in terms of a unit of produce output, constantly change. wheat is: B) the available supplies of factors of production A) 10. B) 20. C) 25. D) 30. are variable in quantity and quality. C) there is production of any particular mix of 18. Refer to the above table. A change from possibility goods and services in the least costly way. B to C means that: D) there is production of that particular mix of A) 10 units of wheat are given up to get one more goods and services most wanted by society. unit of steel. B) 15 units of wheat are given up to get one more 14. Which is one of the four simplifying assumptions unit of steel. made in the chapter about the construction of the C) 15 units of wheat are equal to one unit of steel. production possibilities model? D) 75 units of wheat are equal to one unit of steel. A) The state of technology is constantly changing. B) The number of products produced is more than 19. A point inside the production possibilities curve is: two. A) attainable and the economy is efficient. C) The economy is fully employed and is using B) attainable, but the economy is inefficient. least-cost methods of production. C) unattainable, but the economy is inefficient. D) The quantities of all resources available to the D) unattainable and the economy is efficient. economy are not fixed, but are variable. 20. If an economy is operating at a point inside the 15. The production possibilities curve represents: production possibilities curve, it indicates that: A) the maximum amount of labor and capital A) society's resources are being poorly utilized. available for production. B) the production decisions are made by B) combinations of goods and services among government. which consumers are indifferent. C) unlimited resources must satisfy scarce desires C) maximum combinations of products available of people. with fixed resources and technology. D) there is a scarcity of resources relative to human D) the maximum rate of growth of capital and labor wants. in an economy. 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 27. Cuba is a command economy that suffered decline in of increasing opportunity cost? economic growth because of a cut in support from the A) The economy is employing all of its available former Soviet Union when it collapsed. As a resources. consequence, Cuba: B) Many economic resources are better at A) experienced a shift outward in its production producing one product than another. possibilities curve. C) In any economy, the state of technology is B) experienced a shift inward in its production changing and resources are variable. possibilities curve. D) The economy is achieving productive efficiency C) moved along its existing production possibilities by producing goods and services at the least curve. cost. D) went to a point inside its production possibilities curve. 23. The reason that the production possibilities curve bows outward from the origin is that: 28. In the circular flow model, households: A) opportunity costs are increasing. A) buy products and resources. B) opportunity costs are decreasing. B) sell products and resources. C) there are no opportunity costs. C) buy products and sell resources. D) opportunity costs are constant. D) sell products and buy resources.

24. Opportunity cost is best defined as: 29. The simple circular flow model shows that workers, A) marginal cost minus marginal benefit. entrepreneurs, and the owners of land and capital B) the time spent on an economic activity. offer their services through: C) the value of the best foregone alternative. A) product markets. D) the money cost of an economic decision. B) resource markets. C) employment agencies. 25. Allocative efficiency means that: D) business firms. A) the law of increasing opportunity costs has reached a maximum. 30. Markets in which firms sell their output of goods and B) the least costly methods are being used to services are called: produce a product. A) resource markets. C) resources are being devoted to the production of B) product markets. products most desired by society. C) command markets. D) the amount of other products which must be D) mixed markets. 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.