AP Micro Microeconomics: Basic Economic Concepts 2 — Questions and Answers
Question 1: A student chooses to attend college instead of working full-time. The opportunity cost of attending college is best represented by:
- Tuition and textbook fees
- The wages foregone from not working full-time (Correct answer)
- The total cost of tuition plus foregone wages
- The future salary premium earned after graduation
Correct answer: The wages foregone from not working full-time
Opportunity cost is the value of the next best alternative foregone, which in this case is the wages the student could have earned working full-time.
Question 2: Which of the following best illustrates the economic concept of scarcity?
- A country has a large supply of natural resources
- A government prints more money to pay its debts
- A hospital cannot treat all patients due to limited staff and equipment (Correct answer)
- A store reduces prices to sell excess inventory
Correct answer: A hospital cannot treat all patients due to limited staff and equipment
Scarcity occurs when limited resources cannot satisfy all human wants, as illustrated by a hospital unable to treat all patients with limited staff and equipment.
Question 3: On a production possibilities curve (PPC), a point located inside the curve indicates:
- Maximum productive efficiency
- An unattainable level of production
- Productive inefficiency or unemployed resources (Correct answer)
- A trade-off between two goods
Correct answer: Productive inefficiency or unemployed resources
A point inside the PPC represents productive inefficiency, meaning resources are unemployed or being used ineffectively.
Question 4: Comparative advantage differs from absolute advantage in that comparative advantage is based on:
- Producing more output per unit of input
- Having lower opportunity costs of production (Correct answer)
- Using the most advanced technology available
- Controlling the largest share of the market
Correct answer: Having lower opportunity costs of production
Comparative advantage is based on lower opportunity costs, not on producing the most output, which is absolute advantage.
Question 5: If Country A can produce either 100 units of wheat or 50 units of cloth, and Country B can produce either 60 units of wheat or 60 units of cloth, which country has a comparative advantage in cloth?
- Country A, because it can produce more wheat
- Country B, because the opportunity cost of cloth is lower (Correct answer)
- Country A, because it can produce more total goods
- Neither country has a comparative advantage in cloth
Correct answer: Country B, because the opportunity cost of cloth is lower
Country B gives up 1 unit of wheat per unit of cloth, while Country A gives up 2 units of wheat per unit of cloth, so Country B has the lower opportunity cost for cloth.
Question 6: The law of increasing opportunity costs states that as an economy produces more of one good:
- The price of that good will fall due to surplus
- The opportunity cost of producing each additional unit rises (Correct answer)
- Resources become more efficient at producing that good
- Consumer demand for that good will decrease
Correct answer: The opportunity cost of producing each additional unit rises
Resources are not perfectly adaptable between uses, so as production of one good increases, increasingly less suitable resources must be redirected, raising opportunity costs.
Question 7: Which of the following is an example of a normative economic statement?
- The unemployment rate fell by 0.5% last month
- An increase in the minimum wage reduces employment for low-skilled workers
- The government should raise taxes on the wealthy to reduce income inequality (Correct answer)
- Consumer spending accounts for roughly 70% of GDP
Correct answer: The government should raise taxes on the wealthy to reduce income inequality
Normative statements involve value judgments about what should be, while positive statements describe what is or what will happen.
AP Micro Microeconomics: Basic Economic Concepts 2
A student chooses to attend college instead of working full-time.
The opportunity cost of attending college is best represented by: