AP Economics
Unit 1 & 2 Review
Questions

Economically speaking, why are choices
necessary?
Fundamentals

Define opportunity cost
Fundamentals

What is the difference between SCARCITY
and SHORTAGE?
Fundamentals

What are the FOUR factors of production
we defined in class?
Fundamentals

What are the 3 essential questions that
must be answered by any economic
system?
Fundamentals

Draw a correctly labeled PPF, showing the
trade-off between capital goods and
consumer goods.
Fundamentals

How can specialization and trade increase
total output, and therefore increase total
wealth?
Fundamentals

Can a country have an absolute
advantage in the production of both
goods? Can they have a comparative
advantage in both goods? Be able to
explain why
Fundamentals
In the graph to follow…
 A) who has an absolute advantage in
shoes?
 B) who has the comparative advantage in
shoes?

Fundamentals

In a given amount of time, if the United
States can produce either 10 units of corn
or 5 units of wheat… and Brazil can
produce either 4 units of corn or 3 units of
wheat, what is the United States’
opportunity cost for producing one unit of
wheat?
Fundamentals

If the United States’ opportunity cost for
producing a unit of wheat is 2 units of
corn, then how much corn must Brazil
offer the United States in order for them
to consider voluntarily trading wheat for
corn?
Fundamentals

State the Law of Supply
Supply & Demand

Draw a correctly labeled graph showing
a ________ in Demand.
Supply & Demand

Under what circumstances would an
increase in income cause a decrease in
quantity demanded?
Supply & Demand
If the US government passes additional
regulations on air travel …
 draw a correctly labeled graph showing
the effect on the S & D for American
Airlines.

Supply & Demand
If the price of good X rises …
 draw a correctly labeled graph showing
the effect on the S & D for any substitute
of good X.

Supply & Demand
If the cost of leather decreases …
 draw a correctly labeled graph showing
the effect on the S & D for shoes made
from leather.

Supply & Demand
If the price of leather jackets is expected
to rise next week …
 draw a correctly labeled graph showing
the effect on the S & D for leather jackets
today.

Supply & Demand
If the US government creates a subsidy
on the production of avocados …
 draw a correctly labeled graph showing
the effect on the S & D for the US
avocado market.

Supply & Demand

If the supply of a good increases, how will
this change (a) price, (b) quantity ?
Supply & Demand

If both supply and demand decrease, how
will this effect (a) price, (b) quantity ?
Supply & Demand

What does the Law of __________ state?
Supply & Demand

What does TR stand for, and what is the
equation use to calculate TR?
Supply & Demand

Draw a correctly labeled graph for
pencils. If the only change is an increase
in the price charged for pencils, why does
this cause a change in Qs and Qd but not
a change in S or D?
Supply & Demand

Draw a correctly labeled graph showing
an effective price floor
Price Controls

Draw a correctly labeled graph showing
an effective price ceiling
Price Controls

Why is a price ceiling only effective if it is
set BELOW the equilibrium?
Price Controls

If the price of printers increases from
$150 to $200, and the quantity demanded
of ink decreases from 40 to 20, what is
the elasticity, and what does it say about
the two goods?
Elasticity

If income increases by 2.5% and the
quantity demanded decreases 10%, then
is the good normal or inferior?
Elasticity

If the price of light bulbs increases by
15% and the demand for bubblegum
remains unchanged, what is the relation
between those two goods?
Elasticity

If Wendy’s lowers their prices by 5%, and
all other variables are held constant, the
result is an increase in total revenue.
What does this tell you about Wendy’s’s
elasticity?
Elasticity

A good’s price elasticity of demand must
be between ___ and ___ to be considered
relatively inelastic.
Elasticity

A good’s income elasticity of demand
must be between ___ and ___ for the
good to be considered normal.
Elasticity

If the equilibrium price for a Big Mac is
$2.49, at what prices would a surplus
occur?
Supply & Demand

If Pepsi and Coke are substitutes, then
their Cross Elasticity of Demand (Ec,p)
must _______________.
Elasticity

Because of the law of increasing costs, in
the real world Production Possibility
Curves are not usually straight, but rather
… [draw what the PPF would look like on a
correctly labeled graph comparing good A
and good B]
Fundamentals