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					                     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
      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
       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
       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
       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
      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
      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
       B)     the available supplies of factors of production are variable in quantity and
       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
       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

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 World’s 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?

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