AP Macroeconomics
CH 1 - 3 TEST REVIEW
Mr. Kelley
1a. Define a Price ceiling.
1b. Draw and label an S and D graph in equilibrium. THEN Label as P2 a price that
would be considered a Price Ceiling.
2. For which of the following statements are both the price change and quantity change
determinable (for a particular good)?
A. Both the supply and demand for the good increase
B. Both the supply and demand for the good decrease
C. The supply increases and the demand for the good decreases
D. The supply decreases and the demand for the good increases
E. None of the above
AP Macroeconomics
CH 1 - 3 TEST REVIEW
Mr. Kelley
3. Subsidies create an increase in supply AND a
A. Shortage
B. Surplus
C. Market price
4. Write the Law of Demand
5. Use the following chart to answer question #7
OUTPUT
COUNTRY
France
England
WHEAT
20
60
ANSWER THE FIVE PPF QUESTIONS!
FISH
5
20
AP Macroeconomics
CH 1 - 3 TEST REVIEW
Mr. Kelley
6. What will happen to the equilibrium price and equilibrium quantity of Good Z when
the price of Good X, which is a close substitute for Z, rises?
A. The equilibrium price will rise and the equilibrium quantity will fall
B. The equilibrium price will fall and the equilibrium quantity will rise
C. The equilibrium price and the equilibrium quantity will both fall
D. The equilibrium price and the equilibrium quantity will both rise
E. There is not enough information to answer definitively
7. If labor costs rise in the automobile industry, which of the following would happen to
car prices and the quantity of cars sold (demanded)?
Price
Quantity sold (demanded)
A.
Decrease
Decrease
B.
Decrease
Decrease
C.
Increase
Decrease
D.
Increase
Increase
E.
Increase
No Change
8. For each of the following, determine if there would be an inward, outward, or no shift
of a PPF.
8a. An increase in the labor force
8b. A decrease in the quantity of inputs required to produce a unit of output
8c. A decrease in the quality of human capital (labor)
AP Macroeconomics
CH 1 - 3 TEST REVIEW
Mr. Kelley
9. What does ‘ceteris parabus’ mean?
10. Which of the following statements about the simple circular flow model of a market
economy is correct?
A. Households are on the demand side of the product market and the supply side of
the resource market
B. Firms are on the supply side of both the product market and the resource market
C. Households receive income in the form of wages, and firms receive income in the
form of investment
D. Exports and investment expenditures are examples of leakage from the circular
flow, whereas imports and savings are injections
E. Circular flow models are used primarily to explain why money is necessary to any
economic system
11. What are the five fundamental economic questions?
12. In a command economy, how are the five fundamental economic questions
answered?
AP Macroeconomics
CH 1 - 3 TEST REVIEW
13. List the five (6) Determinants of Demand.
1.
2.
3.
4.
5.
6.
14. List the six (6) Determinants of Supply.
1.
2.
3.
4.
5.
6.
Mr. Kelley
AP Macroeconomics
CH 1 - 3 TEST REVIEW
Mr. Kelley
PART III: FRQs
FRQ 1: For this FRQ I highly recommend that you sketch out your Supply (S1) and
Demand (D1) curves, and then sketch in the shifts (S2 and D2) as indicated. If you then
observe the graph, you will see the effect on equilibrium price and quantity.
For each of the following simultaneous changes in demand and in supply for
a product, indicate the effect on equilibrium price and equilibrium quantity.
A. increase in demand and an increase in supply
B. decrease in demand and a decrease in supply
C. increase in demand and a decrease in supply
AP Macroeconomics
CH 1 - 3 TEST REVIEW
FRQ II.
Consider the Circular Flow model to answer the following:
1. Discuss why or why not the following statement is true.
“ALL interaction among players must be through a market.”
Mr. Kelley
AP Macroeconomics
CH 1 - 3 TEST REVIEW
Mr. Kelley
FRQ III.
C
A
R
S
TRACTORS
Using the diagram above, answer the following questions.
a. If the two countries specialize and trade with each other, which country
will import (or receive) cars? Explain why.
d. If the terms of trade are such that one car can be exchanged for one
tractor, give a detailed explanation how Atlantis will benefit from such a
trade.
AP Macroeconomics
CH 1 - 3 TEST REVIEW
Mr. Kelley
FRQ IV:
Choose two of the five fundamental questions.
CONTRAST how these fundamental economic questions are addressed in
command versus market economies.
{Note: when directions say “contrast…” it means specifically to discuss
differences…not similarities}
AP Macroeconomics
CH 1 - 3 TEST REVIEW
Mr. Kelley
FRQ V:
Briefly explain the “coordination” problem when it comes to a command
economy.
FRQ VI:
Write an argument FOR the benefits of a command economy in small
sized or isolated communities.