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Circle the letter ofeach correct answer. 4. Which of the following is true of the concept
of increasing opportunity cost?
1. The crucial problem of economics is (A) It is unimportant in command economies
(A) establishing a fair tax system. because of central planning.
(B) providing social goods and services. (B) It suggests that the use of resources to pro
(C) developing a price mechanism that reflects duce a set of goods and services means that
the relative scarcities of products and as more of one is produced, some of the
resources. other must be sacrificed.
(D) allocating scarce productive resources to (C) It is irrelevant if the production possibili
satisfy wants. ties curve is convex to the origin.
Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 39
40 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y.
Use the figure below for questions 13 through 16. It
shows the production possibilities curve for a coun
14. Which of the following statements about the
production possibilities curve is true?
try with full employment ofa given-size labor force. (A) Point A is not attainable in a developed
B
society.
(B) Point D is not attainable given the society's
resources.
E (C) The relative position of Points C and D
(J)
I reflect production alternatives rather than
o
:::::> relative prices.
o
oa: (D) Elimination of unemployment will move
a.. the production possibilities curve to the
~
a: right, closer to Point E.
if A
(E) Point E lies outside the production possi
bilities curve because it represents'<l combi
nation of resources not desired by the citi
zens of the country.
F
COMPUTERS 15. How might Point E be attained?
(A) If the country's resources were more fully
13. If the country is currently producing at Point
employed
C, it can produce more computers by doing
which of the following? (B) If the country's resources were shifted to
encourage more efficient use of scarce
(A) Moving to Point A
resources
(B) Moving to Point B
(C) If improvements in technology occurred in
(C) Moving to Point D either the computer sector or the farm
(D) Moving to Point E products sector
(E) Remaining at Point C, since computer pro (D) If firms decreased their output of computers
duction is maximized (E) If the nation used more of its scarce
resources to produce farm products
Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 41
17. The opportunity cost of producing an
additional unit of product A is
Use the following table for questions 20,21 and 22.
Mars Venus
(A) all of the human and capital resources used Food Clothing Food Clothing
to produce product A. 0 30 0 40
(B) the retail price paid for product A. 2 24 4 32
(C) the wholesale price of product A. 4 18 8* 24*
5* 12* 12 16
(D) the amount of product B that cannot now
8 6 16 8
be produced because of product A.
10 0 20 0
(E) the profit that was earned from producing
Two nations, Mars and Venus, each produce
productA.
food and clothing. The table above gives points
on each nation's production possibilities curve.
18. Which of the following would cause a leftward
The asterisks indicate their current point of
shift of the production possibilities curve?
production.
(A) An increase in unemployment
(B) An increase in inflation 20. In Mars, the opportunity cost of obtaining the
(C) An increase in capital equipment first two units of food is how many units of
clothing?
(D) A decrease in consumer demand
(A) 2 (B) 3
(E) A decrease in working-age population
(C)6 (D) 8
42 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York. N. Y.
23. The table below shows the number of hours
needed to produce one bushel of soybeans and
25. If the demand for a good or service decreases,
the equilibrium price and quantity are most
one bushel of rice in each of two countries. likely to change in which of the following ways?
One bushel One bushel Price Quantity
Country of soybeans of rice (A) Increase Increase
U.S. 5 hours 7 hours
(B) Increase Decrease
Japan 15 hours 10 hours
(C) Decrease Decrease
Which of the following statements must be
(D) Decrease Increase
true?
I. The United States has an absolute advan (E) No change No change
tage in producing soybeans.
II. Japan has an absolute advantage in 26. A decrease in the price of silicon chips and
producing rice. increased production of user-friendly software
III. Japan has a comparative advantage in pro will affect the price and quantity of computers
ducing soybeans. in which of the following ways?
IV. The United States should specialize in the Price Quantity
production of soybeans and Japan should (A) Increase Increase
specialize in the production of rice.
(B) Increase Decrease
(A) I only
(C) Decrease Decrease
(B) III only
(D) Decrease May increase,
(C) I and IV only decrease or remain
(D) II and IV only the same
decrease or re
Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 43
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QUANTITY
Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 45
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1. True, false or uncertain, and explain why? "The economic concept of scarcity is not relevant to the
study of a modern economy such as that of the United States because the existence of unsold stocks
of goods (books, cars, homes) is vivid evidence that we are surrounded by plenty, not scarcity:'
2. A newspaper headline says, "The Coldest Winter in 20 Years Brings Record Prices for Heating Oil."
(A) Using a graph of home heating oil, show and explain how price changed.
(B) What other factors could cause the price of heating oil to increase?
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Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y.
47
3. In a recent year, the price of wheat fell. For each of the following, draw a supply and demand graph
showing a decrease in prices with the stated impact on quantity.
(A) The quantity of wheat decreasing
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(C) The quantity of wheat staying the same ,
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48 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education. New York. N. Y. t;
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4. True, false or uncertain, and explain why? "If you won $1 million in the lottery, you wouldn't have
the economic problem of scarcity."
5. Explain what would have to be true in each case for the production possibilities curves to be
shaped as they are in Graphs I, II and III.
Graph I Graph II Graph III
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:sa. :sa. :sa.
E E
Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 49
(C) Suppose Hightechland is operating at Point C but would like to alter production to Point D.
What would be the per-unit opportunity cost of producing more computers?
(D) Suppose Hightechland is operating at Point C but would like to alter production to Point B.
What would be the per-unit opportunity cost of producing more movies?
(E) What will happen to Hightechland's production possibilities curve if many of its movie sets
are destroyed by fire? (Assume that the sets are not used in the production of computers.)
Using the same graph you drew for Question 2(B), draw Hightechland's new production pos
sibilities curve and label it BB.
(F) What will happen to Hightechland's production possibilities curve if all the country's
resources are reduced (perhaps by natural disaster or war)? Using the same graph as in
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Question 2(B), draw Hightechland's new production possibilities curve and label it Cc.
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(G) What will happen to Hightechland's production possibilities curve if technology improves
both the production of movies and the production of computers? Using the same graph as in
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Question 2(B), draw Hightechland's new production possibilities curve and label it DD. !.
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52 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. ~'
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3. The market for many commodities is seasonal in nature. Their sales (equilibriumquantity)
increase dramatically during certain times of the year. Christmas cards and fresh strawberries, at
least in the North, are two examples. Christmas card sales increase during the last three months of
the year, and the sales of fresh strawberries in the North increase during the summer months. But
the (equilibrium) price movement of these two commodities is quite different during their peak
sales season: Christmas cards increase in price during the last three months of the year, whereas
strawberries decrease in price during the summer.
(A) Show on the graph below how there can be an increase in the equilibrium quantity and an
increase in the equilibrium price of Christmas cards during the last three months of the year,
and briefly explain what has happened.
Christmas Card Market
s
~P
a:0.
o
Q
QUANTITY
(B) Change the graph for fresh strawberries in the North to show how there can be an increase in
the equilibrium quantity and a decrease in the equilibrium price of strawberries in the sum
mer, and briefly explain what has happened.
Strawberry Market in the North
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gp
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0.
Q
QUANTITY
Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York, N.Y. 53
4. Explain how each of the following may affect the production possibilities curve of the United
States or the point at which the economy is operating. Draw a production possibilities curve; put
"Capital Goods" on the vertical axis and "Consumer Goods" on the horizontal axis. Now, add a
PPC curve or point to the graph to illustrate the scenario.
(A) The Congress and the president
a healthier lifestyle.
54 Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York. N.Y.
(D) The unemployment rate increases in
the economy from 4.2 percent to 5.1
percent of the labor force.
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Adwnced Placement Economics Macroeconomics: Student Activities if:) National Council on Economic Education, New York, N.. 55
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Sample Long Free-Response Questions
1. Every society has the fundamental problem of scarcity.
(A) What is scarcity?
(B) What three questions must every society answer because of scarcity?
(C) What are the three ways societies have dealt with the scarcity problem?
(D) Give one example of how each way is used in the United States.
Commodity A B C o E
Movies 100 75 50 25 o
Computers o 30 55 70 80
(A) Does movie production exhibit increasing, decreasing or constant per-unit opportunity costs?
How do you know?
Advanced Placement Economics Macroeconomics: Student Activities National Council on Economic Education, New York. N.Y. 51