AP Micro Unit 1 Multiple Choice Questions

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1. Which of the following is true for all economies regardless of their economic system?
A. Every economy must determine what to produce and how it produce goods and services
B. Every economy must find a way to distribute income equally
C. Every economy must find ways to privatize markets to maximize efficiency
D. Every economy must prevent unemployment through government intervention
E. Every economy must open free trade with other economies
Answer: A

2. Which of the following is the best example of physical capital?

A. A $100,000 business loan from a bank
B. A business hiring 10,000 workers at a factory
C. A truck for a delivery company
D. An oven for a family of four
E. An increase in construction jobs
Answer: C

3. When making a decision, the next best alternative is called

A. The production possibilities
B. The opportunity cost
C. Scarcity
D. The absolute advantage
E. Efficiency
Answer: B

4. Which of the following must be true if an individual’s next best alternative to going to the
beach is studying for an economics exam?
A. They will decide to study for the exam
B. The opportunity costs is seeing their friends at the beach
C. The person prefers playing volleyball at the beach to study for the exam
D. The opportunity cost of going to the beach is all the other things they could have done
E. The opportunity cost of going to the beach is being better prepared for the exam
Answer: E

5. If the production possibilities curve is concave from the origin (or bowed out), then
economists say that
A. Resources are scarce in the economy
B. Resources are not equally suited for the production of both goods
C. Economic growth is occurring in the economy
D. Resources are being inefficiently used in the economy
E. Resources are equally suited for the production of either good
Answer: B

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6. A point outside the production possibilities curve would represent
A. An efficient use of resources
B. Future output once producers become more efficient
C. An inefficient use of resources
D. A combination that cannot be achieved due to scarcity
E. Full employment of resources in the economy
Answer: D

7. An increase in which of the following would cause an outward shift of the production
possibilities curve for consumer goods and capital goods?
A. An increase in the demand for consumer goods
B. An increase in taxes on consumers
C. A decrease in unemployment
D. An increase in the resources to produce capital goods
E. The efficient production of consumer goods
Answer: D

8. Which of the following is true according to the circular flow model?

A. Firms are suppliers in both the product and factor markets.
B. Firms are demanders in the resource markets and suppliers in the product markets.
C. Households are demanders in both the resource and factor markets.
D. Households are demanders in the resource markets & suppliers in the product markets.
E. The private sector is made up of the households, firms, and the government.
Answer: B

9. Which of the following can be considered a leakage from the circular flow of economic
activity?
A. Taxes
B. Government expenditures
C. Social Security payments
D. Consumer spending
E. Saving
Answer: E

10. Which of the following best explains why many U.S. economists support free trade?
A. Workers who lose their jobs due to free trade can collect unemployment compensation.
B. It is more important to reduce global inflation than to reduce domestic unemployment.
C. Workers are not affected by free trade since only domestic businesses suffer.
D. The long-run gains to consumers and some producers exceed the losses to other producers.
E. Government can protect domestic industries while encouraging free trade.
Answer: D

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11. Claire is an economist who can earn $150 per hour. She is also an excellent chef who can
cook three times as fast as the best chef in the area, whose hourly wage is $20 per hour.
Which of the following is a correct economic statement?
A. Claire has a comparative advantage in economics so she should specialize in economics and
hire the chef to cook for her.
B. Claire has an absolute and comparative advantage in both economics and cooking, so she
work as an economist and as a chef.
C. Claire is three times faster than any chef so she could give up economics to become a chef.
D. When chefs work for economists, they should charge $150 per hour instead of $20 per hour.
E. Because Claire is an excellent chef, when the best chef works for Claire, she should pay the
chef only 1/3 the hourly wage.
Answer: A

12. If Mike can make 2 surfboards per hour or 10 bikes per hour and Joe can produce 4
surfboards per hour and 12 bikes. Which of the following is true?
A. Mike has an absolute advantage in the production of surfboards
B. Mike’s opportunity cost for producing one bike is 5 surfboards
C. Joe has a comparative advantage in the production of both surfboards and bikes
D. Mike has a comparative advantage in the production of surfboards
E. Joe’s opportunity cost for producing one surfboard is 3 bikes
Answer: E

13. Atlantis can produce either 2 tons of grain or 4 cars with 10 units of labor. Zoltar can
produce either 5 tons of grain or 25 cars with 10 units of labor. Based on this information,
which of the following is true.
A. Atlantis has an absolute advantage in the production of grain, while Zoltar has a comparative
advantage in the production of grain.
B. Atlantis has a comparative advantage in the production of grain, while Zoltar has a
comparative advantage in the production of cars.
C. Atlantis has an absolute advantage in the production of grain, while Zoltar has a comparative
advantage in the production of cars.
D. Atlantis has a comparative disadvantage in the production of both goods.
E. Neither country has a comparative advantage in the production of either good.
Answer: B

14. A consumer us considering buying a shirt. His/her choices are a red shirt, a blue shirt, or a
green shirt. Each shirt costs $20 and that is the amount the consumer is willing and able to
spend to purchase a shirt. After considering the choices, the consumer chooses to purchase
the green shirt. What is the consumer’s Opportunity Cost of that decision?
A. The Red Shirt
B. The Blue Shirt
C. Both the Red Shirt and the Blue Shirt
D. Either the Red Shirt or the Blue Shirt
E. The $20 spent on the Green Shirt
Answer: D

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15. The chart shows the total utility (in utils) a typical consumer receives for eating pizza. Which
of the following is correct for this individual?
A. This person does not experience diminishing marginal utility
B. The marginal utility of the 4th slice is 4 utils
C. The marginal utility of the 5th slice is 5 utils
D. The total utility decreases at a constant rate
E. This person would eat 5 slices of pizza

Answer: B. Marginal utility is the change in total utility divided by the change in units
consumed. This person does experience diminishing marginal returns since the marginal utility is
decreasing. We would need to know the marginal cost of each another slice of pizza in order to
evaluate answer E.

16. Assume a consumer has maximized her utility by buying two products: cupcakes and cheese.
Her marginal utility for the last cupcake is 30. If the price of cupcakes is $3 and the price of
cheese is $5, how much is her marginal utility for her last unit of cheese?
A. 10
B. 30
C. 50
D. 100
E. Not enough information

Answer: C http://www.youtube.com/watch?v=OnVGp2rDkBE
Utility Maximizing Rule: MUx/Px =MUy/Py . She maximizes utility when the marginal utility
per dollar for the two products are equal. If her marginal utility per dollar for cupcakes is 10
(30/$3) then her marginal utility per dollar for cheese must be 10 (50/$5).

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17. The crucial problem of economics is
A. Establishing a fair tax system.
B. Providing social goods and services
C. Developing a price mechanism that reflects the relative scarcities of products and
resources.
D. Allocating scarce productive resources to satisfy wants
E. Enacting a set of laws that protects resources from overuse.
Answer: D

18. In which way does a straight-line production possibilities curve differ from a concave
production possibilities curve?
A. A straight-line production possibilities curve has a decreasing opportunity cost.
B. A straight-line production possibilities curve has a constant opportunity cost.
C. A straight-line production possibilities curve has an increasing opportunity cost.
D. A straight-line production possibilities curve does not show opportunity cos.t
E. Upward-sloping production possibilities curve.
Answer: B

19. The law of increasing opportunity cost is reflected in the shape of the
A. Production possibilities curve concave to the origin (“bowed-out”)
B. Production possibilities curve convex to the origin (“bowed-in”)
C. Horizontal production possibilities curve
D. Straight-line production possibilities curve
E. Upward-sloping production possibilities curve
Answer: A

20. Which of the following would cause a leftward shift of the production possibilities curve?
A. An increase in unemployment
B. An increase in inflation
C. An increase in capital equipment
D. A decrease in consumer demand
E. A decrease in working-age population
Answer: E

21. Which of the following would cause an outward or rightward shift in the production
possibilities curve?
A. An increase in unemployment
B. An increase in inflation
C. An increase in capital equipment
D. A decrease in natural resources
E. A decrease in the number of workers
Answer: C

28. Which of the following is true if consuming one taco yields 50 utils and consuming a second
taco increases satisfaction by 10 utils?
A. The marginal utility of the first taco is 10
B. The marginal utility of the second taco is 40
C. The marginal utility of the second taco is 60
D. The total utility of consuming two tacos is 60
E. The total utility of consuming one taco is greater than the total utility of consuming two
units
Answer: D
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