AP MICRO —
STUDY GUIDE
Unit 1: BASIC ECON CONCEPTS
1.1-1.2
pure command economy
●​ necessary for the effective functioning of a market system?
○​ well-defined system of property rights
○​ Property rights are the organizing force of markets and are like rules of a
●​
game. When everybody knows the rules, and those rules are followed and
enforced, everyone can enjoy the game and play their best. When property
rights are well defined and enforced, markets operate their best.
●​ best definition of an economic system?
○​ A mechanism to decide what to make, how to make it, and
who gets it
■​ An economic system is how an economy has decided what gets made,
how to allocate resources toward production, and how to allocate the
goods and services produced.
●​ necessary for a market economy to function well, but is not
necessary for a command economy to function well?
○​ Well-defined and well-protected property rights
■​ Well-defined and well-protected property rights are the cornerstone of a
market system. A market system depends on markets— the buying and
selling of things— to make allocation decisions. If it is not known who
owns something, it is not possible to exchange it in a market.
●​ NOT a microeconomic question?
○​ How is the unemployment rate related to business cycles?
○​ The relationship between the unemployment rate and the business cycle is a
macroeconomic question because macroeconomic questions deal with
problems facing the entire economy. Microeconomic questions deal with
decision-making by individuals, households, and firms.
●​ NOT a likely consequence of weakly established or absent property
rights?
○​ innovation
○​ When property rights are weakly established, there is no guarantee that
someone who creates a better or more efficient way of doing something will be
rewarded for their efforts. As a result, there is less incentive to innovate if
property rights are weak or absent.
●​ best captures the idea of the fundamental economic problem?
○​ Limited resources and unlimited wants
■​ The unlimited wants of humans results in the problem of scarcity, which
any economic system must address.
●​ Brian is a manager who made triple chocolate chip cookies for his
team. When he decides whether those on his team who worked
hardest should get more cookies, or just split them up equally,
which of the three basic economic questions does he answer?
○​ To whom do these goods and services go?
○​ The three basic economic questions are what should be produced, how should
it be produced, and who gets the goods and services produced. Brian
answered the “what” question by deciding to make cookies, he answered the
“how” question by deciding on the best use of his resources to make them,
and he answered the “to whom” question when he decided whether he should
give cookies based on work effort or split equally.
●​
best describes what we mean by resources in economics?
○​ The factors used to produce goods and services
■​ The four economic resources - land, labor, capital, and
entrepreneurship - are used to produce goods and services.
1.1-1.2
●​ Opportunity cost is the trade-off that one makes when deciding between two
options.
Unit 2: BASIC ECON CONCEPTS