AP Macro
Review Sheet #1
9.30.15
Topics to study with terms and concepts to know under each.
1) Basic Economic Principles
a) Scarcity
b) 4 main categories of resources
i) know examples in each of these that could relate to different product markets
c) Positive vs. Normative statements
d) Business Cycle
i) 4 stages
ii) what occurs in each stage
iii) signs of when you are in a given stage
e) Inflation/deflation/price stability
i) Causes
ii) Results
iii) Price stability is ultimate goal of economics
2) PPC curve
a) All labels for the graph
b) Tradeoff’s
c) Efficiency
d) PPC gives us opportunity cost
e) What shifts the PPC
f) Know how to draw your own ppc and how to change it and show specialization.
i) Unless told otherwise all PPC graphs should be a straight line
g) Comparative and absolute advantages
3) Demand Curve
a) Demand schedule
b) Differences between shifting demand and movements along the demand curve
i) 5 things that shift the demand curve
c) Substitutes/complements
4) Supply curve
a) Supply schedule
b) Differences between shifting the supply curve and movements along the supply curve
i) Five factors that will shift the supply curve (similar to demand but not exactly the
same)
5) Equilibrium
a) Equilibrium Price
b) Equilibrium Quantity
c) What causes these to change?
i) I would study the table that I gave you guys about shifts of supply and demand and
what the effects are on equilibrium price and equilibrium quantity
6) Price controls (Know how they look on the graph and what they do to equilibrium)
a) Price ceilings
i) What are the results of price ceilings
ii) Why do we use them if there are so many negative side effects
iii) What is the goal of price ceilings in the first place?
b) Price floors
i) What are the results of price floors?
ii) Why do we use them if there are so many negative side effects?
iii) What is the goal of price floors when we put them into place?
7) Quantity controls
a) Quota
i) Licenses
ii) Results of quota being put into effect
iii) Goal of quota
Practice Problems
Multiple Choice
_____1. The diagram below shows the demand and supply curves for a normal good. The
equilibrium price could rise from P1 to P2 if?
(a) consumers’ incomes increased
(b) P2 were set as a legal maximum
(c) subsidies on the product increased
(d) the price of a complementary product increased
(e) costs of production were substantially lowered
S
P
P2
P1
D
QE
Q
______2. A move from Z to X on the graph below represents what in terms of opportunity cost?
(a) a gain of 10lbs of cheese
(b) a loss of 10 gallons of milk
(c) a loss of 10lbs of cheese
(d) a gain of 3lbs of cheese
(e) a loss of 7lbs of cheese
______3. According to the graph below, if country A and country B were to specialize and trade,
which country would produce coconuts and why?
(a) country B because they have the absolute advantage in coconuts
(b) country A because they have the absolute advantage in coconuts
(c) both because both have resources that can be dedicated to coconuts
(d) country A because they have the lower opportunity cost in coconuts
(e) country B because they have the comparative advantage in coconuts
____4. The ratio when two nations exchange goods and services is known as…
(a) balance of payments
(b) exchange rate
(c) fair market price
(d) intrinsic advantage
(e) terms of trade
_____5. Refer to graphic below: In Britain the opportunity cost of moving from 4 tons of steel
to 5 tons of steel is?
(a) one-fifth of a ton of chemicals
(b) Five tons of chemicals
(c) one-third of a ton of chemicals
(d) three tons of chemicals
(e) 15 tons of chemicals
_____6. Ray and Dorothy can both cook and can both pull weeds in the garden on a Saturday
afternoon. For every hour of cooking, Ray can pull 50 weeds and Dorothy can pull 100 weeds.
Based on this information…
(a) Ray pulls weeds since he has an absolute advantage in cooking
(b) Dorothy pulls weeds since she has an absolute advantage in cooking
(c) Dorothy cooks since she has a comparative advantage in cooking
(d) Ray cooks since he has a comparative advantage in cooking
(e) Dorothy pulls weeds since she has a comparative advantage in cooking
_____7. The equilibrium price will rise, but equilibrium quantity may increase, decrease or stay
the same(ambiguous) if…
(a) demand increases and supply decreases
(b) demand increases and supply increases
(c) demand decreases and supply increases
(d) demand decreases and supply decreases
(e) demand increases and supply does not change
Free Response
1. Draw a correctly labeled graph showing the market for peanut butter in equilibrium
(a) Now, on the graph, show the effect on equilibrium price and quantity in the market
for peanut butter if the price of peanuts increases
2. Draw a correctly labeled graph showing the market for labor in equilibrium
(a) on the graph show the effect of a minimum wage (price floor) in the market and
label the unemployment that is a result of the minimum wage