UNIT 1 Macroeconomics SAMPLE QUESTIONS Key

1 Advanced Placement Economics Teacher Resource Manual National Council on Economic Education,New York, to SAMPLE Long Free-Response society has the fundamental problem ofscarcity.(A)What is scarcity? Scarcity exists because there are limited resources to fulfill unlimited wants.(B)What three QUESTIONS must every society answer because ofscarcity? What to produce andhow much ofeach good or service to produce,how to produce,and for whom to produce(C)What are the three ways societies have dealt with the scarcity problem?Tradition,commandand market(D)Give one example ofhow each way is used in the United will produces two commodities:movies and s resourcesinclude workers,factories,electricity and so following schedule indicates some ofthepoints on Hightechland s production possibilities (A)Does movie production exhibit increasing,decreasing or constant per-unit opportunity costs?

2 How do you know? Movie production indicates increasing per-unit opportunity moremovies are produced,increasingly more computers must be sacrificed.(B)Graph Hightechland s production possibilities curve,and label it UNIT372 Advanced Placement Economics Teacher Resource Manual National Council on Economic Education,New York, (C)Suppose Hightechland is operating at Point C but would like to alter production to Point would be the per-unit opportunity cost ofproducing more computers? With a movefrom Point C to Point D,the per-unit opportunity cost ofproducing one additional computer is1 2/3 movies.(D)Suppose Hightechland is operating at Point C but would like to alter production to Point would be the per-unit opportunity cost ofproducing more movies?

3 The per-unit oppor-tunity cost ofproducing one more movie as we alter the production from Point C to Point B isone computer.(E)What will happen to Hightechland s production possibilities curve ifmany ofits movie setsare destroyed by fire? (Assume that the sets are not used in the production ofcomputers.)Using the same graph you drew for question 2(B),draw Hightechland s new production pos-sibilities curve and label it point on the axis will shift inward for the movieproduction,but the point on the axis corresponding to computer production will not change.(F)What will happen to Hightechland s production possibilities curve ifall the country sresources are reduced (perhaps by natural disaster or war)?

4 Using the same graph as inQuestion 2(B),draw Hightechland s new production possibilities curve and label it the production possibilities curve to the left or inward.(G)What will happen to Hightechland s production possibilities curve iftechnology improvesboth the production ofmovies and the production ofcomputers? Using the same graph as inQuestion 2(B),draw Hightechland s new production possibilities curve and label it the production possibilities curve to the right or UNITA dvanced Placement Economics Teacher Resource Manual National Council on Economic Education,New York, market for many commodities is seasonal in sales (equilibrium quantity)increase dramatically during certain times ofthe cards and fresh strawberries,atleast in the North,are two card sales increase during the last three months ofthe year,and the sales offresh strawberries in the North increase during the summer (equilibrium)

5 Price movement ofthese two commodities is quite different during their peaksales season:Christmas cards increase in price during the last three months ofthe year,whereasstrawberries decrease in price during the summer.(A)Show on the graph below how there can be an increase in the equilibrium quantity and anincrease in the equilibrium price ofChristmas cards during the last three months ofthe year,and briefly explain what has other things constant,there is an increase in the demand for Christmas cards in the lastthree months ofthe causes a rightward shift ofdemand and causes the price andquantity sold to increase.(B)Change the graph below for fresh strawberries in the North to show how there can be anincrease in the equilibrium quantity and a decrease in the equilibrium price ofstrawberries inthe summer,and briefly explain what has things constant.

6 There is an increase in the supply for fresh strawberries in the northernareas ofthe United States in the warmer months when the berries are harvested in the causes a rightward shift in the supply curve and causes the price to fall and thequantity sold to UNITQ1 QSDP1 PQUANTITYPRICED1 Christmas Card MarketQ1 QSS1DP1 PQUANTITYPRICES trawberry Market in the North374 Advanced Placement Economics Teacher Resource Manual National Council on Economic Education,New York, how each ofthe following may affect the production possibilities curve ofthe UnitedStates or the point at which the economy is a production possibilities curve;put Capital Goods on the vertical axis and Consumer Goods on the horizontal ,add aPPC curve or point to the graph to illustrate each scenario.

7 (A)The Congress and the presidentdecide to provide more funding forhigher education with more studentsattending college and education increases humancapital,a resource,and moves thecurve outward.(B)New advances in medicine allow fora healthier medicineimproves human capital,a resource,and moves the curve outward.(C)The United States agrees to be a partofa world-trade agreement that willfoster international trade increases output becauseofthe law ofcomparative advantageand moves the curve UNITCONSUMER GOODSCAPITAL GOODSCONSUMER GOODSCAPITAL GOODSCONSUMER GOODSCAPITAL GOODSA dvanced Placement Economics Teacher Resource Manual National Council on Economic Education,New York, (D)The unemployment rate increases inthe economy from percent to ofthe labor increasein the unemployment rate results inunderemployed resources,which is illus-trated by a point inside the (workers) are still availablebut are not being employed.

8 (E)Computer viruses are out ofcontrol,and efficiency and output in theeconomy computer virusestake computers out ofcommission,which shifts the curve UNITCONSUMER GOODSCAPITAL GOODSUCONSUMER GOODSCAPITAL GOODS