AP ECONOMICS EXAM CHAPTERS 1 & 2

1. The "economic perspective" focuses largely on: A) normative economics. B) the post hoc fallacy. C) marginal analysis. D) the fallacy of composition 2. Which expression is another way of saying "marginal benefit"? A) profit B) loss C) total benefit D) extra benefit 3. The concept of "rational behavior" suggests that: A) positive economics is more important then normative economics. B) normative economics is more important than positive economics. C) people make different choices because their circumstances and information differ. D) there is a logical fallacy of composition that affects microeconomic thinking but not macroeconomic thinking 4. Which is a primary reason for the study of economics? A) It makes people more selfish in their discussion of economic issues. B) It promotes a greater justification for the profit-making concerns of business. C) It improves the decision-making of businesses, consumers, and government officials. D) It guarantees that people will get the best-paying jobs when they graduate from a university 5. The ceteris paribus assumption is employed in economic analysis to: A) state economic goals. B) simplify the complex world. C) evaluate an economic system. D) approximate real-world conditions

6. Which of the following is not generally considered to be an economic goal? A) full employment B) price stability C) pure competition D) economic security 7. To say that two economic goals are conflicting means that: A) it is impossible to quantify both goals. B) there is a tradeoff in the achievement of the two goals. C) the two goals are not fully accepted as important economic goals. D) the attainment of one goal also results in the attainment of the other goal 8. Which question is an example of a macroeconomic question? A) What is the level of industrial concentration in the automobile industry? B) What economic incentives can be used to reduce the cost of health care? C) What policies would be recommended for stimulating national economic growth? D) What are the supply and demand conditions expected to be for the major farm crops 9. Which question is an example of a microeconomic question? A) What should the Federal government do to reduce the trade deficit with Japan? B) Will the merger of two airlines likely lead to higher airline ticket prices? C) What factors are contributing to the rise of unemployment in the economy? D) Will the inflation rate remain relatively stable this year? 10. The comment that "the minimum wage should be raised to give working people in this country a fair wage" is an example of: A) a normative economic statement. B) a positive economic statement. C) the fallacy of composition. D) the after this, therefore because of this, fallacy 11. Which would be a positive economic statement? A) Government should provide free housing shelter for the homeless. B) The minimum wage should be increased to give people a decent wage. C) Americans should buy American products to boost the national economy. D) Stock prices rose to a new record last month for the fourth month in a row

12. What pitfall to objective thinking is reflected when a person states that "capitalists don't care about workers and are greedy individuals"? A) abstraction B) loaded terminology C) the fallacy of composition D) confusing correlation and causation 13. Which statement best illustrates the fallacy of composition? A) If the average price I pay for food rises, the purchasing power of my income has fallen. B) If I stand up, I will see better at a football game; therefore, if all the football spectators stand up, they will see better. C) If I attend more classes, I will learn more. D) If I buy more gasoline each week, my gasoline consumption has increased; therefore, if all gasoline consumers buy more gasoline each week, gasoline consumption has increased 14. Which is the primary focus of study in macroeconomics? A) an industry B) a household C) a business firm D) the national economy 15. Which economic goal would be the most difficult to measure or to quantify? A) economic growth B) economic freedom C) full employment D) balance of trade 16. Economists have difficulty applying the scientific method because: A) economic conditions are constant. B) controlled laboratory experiments are impossible or often infeasible. C) people are involved, and their behavior is entirely predictable. D) the scientific method does not apply to economics 17. The term scarcity in economics refers to the fact that: A) economic wants are limited and resources are abused. B) even in the richest country some people go hungry. C) no country can produce enough products to satisfy everybody's economic wants. D) it is impossible to produce too much of any particular good or service

18. Economists would classify all of the following as land except: A) two thousand acres of virgin forest. B) a hydroelectric dam. C) crude oil reserves. D) iron ore deposits 19. Which would not be considered as capital (or an economic resource) by an economist? A) a share of corporate stock issued by General Motors B) an automobile used by General Electric C) a crane used by a building contractor D) a razor used by a barber 20. Economic resources in the capitalist system are brought together by: A) government units. B) entrepreneurs. C) corporate shareholders. D) the managerial elite. 21. With productive efficiency: A) the state of technology, or methods used to produce output, constantly change. B) the available supplies of factors of production are variable in quantity and quality. C) there is production of any particular mix of goods and services in the least costly way. D) there is production of that particular mix of goods and services most wanted by society 22. When an economy achieves both allocative and productive efficiency, it implies that there is: A) income equality. B) price stability. C) full production. D) fixed technology 23. The production possibilities curve represents which of the following? A) the amount of goods attainable with variable resources B) the maximum amount of goods attainable with variable resources C) maximum combinations of goods attainable with fixed resources D) the amount of goods attainable if prices decline

24. On a production possibilities curve, the single optimal or best combination of output for any society: A) is at a point near the top of the curve. B) is at the precise midpoint of the curve. C) is at a point near the bottom of the curve. D) depends upon the preferences of society 25. A point inside the production possibilities curve is: A) attainable and the economy is efficient. B) attainable, but the economy is inefficient. C) unattainable, but the economy is inefficient. D) unattainable and the economy is efficient 26. A point on the frontier of the production possibilities curve is: A) attainable and the economy is efficient. B) attainable, but the economy is inefficient. C) unattainable, but the economy is inefficient. D) unattainable and the economy is efficient 27. The law of increasing opportunity costs indicates that: A) resources are perfectly mobile except for transportation costs. B) the sum of all costs cannot rise above the market price of a product. C) to produce more of one good, society must sacrifice larger and larger amounts of alternative goods. D) if the prices of all the resources involved in the production of goods increase, the cost of producing those goods will increase at the same rate 28. The reason that the production possibilities curve bows outward from the origin is that: A) opportunity costs are increasing. B) opportunity costs are decreasing. C) there are no opportunity costs. D) opportunity costs are constant. 29. After graduating from high school, Ron Willis plans to go to college. The college tuition is $15,000 a year. But, instead of going to college, Ron could take a full-time job paying $20,000. If Ron decides to go to college, what is his opportunity cost for attending for one year? A) $5,000 B) $15,000 C) $20,000 D) $35,000

30. Economic growth may be represented by a: A) rightward shift of the production possibilities curve. B) leftward shift of the production possibilities curve. C) production possibilities curve which remains fixed. D) point outside (to the right) of the production possibilities curve. 31. The effect of specialization and international trade will: A) move a nation along its production possibilities frontier. B) move a nation to a point inside its production possibilities curve. C) cause a leftward shift in a nation's production possibilities curve. D) cause a rightward shift in a nation's production possibilities curve 32. The private ownership of property resources and use of prices to direct and coordinate economic activity is characteristic of: A) a command system. B) a market system. C) communism. D) socialism 33. A basic characteristic of a command system is that: A) wages paid to labor are higher. B) government owns most economic resources. C) free markets are never permitted in a command economy. D) government planners play a limited role in deciding what goods will be produced 34. The circular flow model: A) assumes that central planning is taking place. B) illustrates how natural resources are created. C) illustrates how money is created by the banking system. D) illustrates the interdependence of businesses and consumers 35. Markets in which firms sell their output of goods and services are called: A) resource markets. B) product markets. C) command markets. D) mixed markets

II. FREE REPSONSE (10 Points Partial Credit allowed) Using the table below, create a Production Possibilities Frontier depicting the amounts of each particular good that can be produced given a fixed set of resources. Missiles / Laptop Computers 5 100 4 200 3 350 2 700 1 1500 0 2000 Label a point on the graph A in any area where it is impossible to attain that level of production (2 Points) Label a point on the graph B in any area where that would be considered less than full production (2 Points) BONUS (5 Points) He is CEO of the Omaha, NE, based Berkshire-Hathaway and ranked by Forbes Magazine in 2009 as the Worlds 2nd richest man. He is known widely throughout the business world as the Oracle for his uncanny ability to predict market fluctuations. Who is he?