AP Macroeconomics Test Review (Unit 1B) – Friday, Sept. 21, 2012

Key Concepts: Be able to explain, apply, and demonstrate the following concepts.

Þ  Comparative & Absolute Advantages / Þ  Opportunity Cost / Þ  PPC
Þ  Supply
ü  Law of Supply
ü  Determinants / Þ  Demand
ü  Law of Demand
ü  Determinants / Þ  Equilibrium
Þ  Shifts v Movements / Þ  Floors v Ceilings / Þ  Shortages v Surpluses
Þ  Elasticity

Graphing: When given specific criteria, be able to create and evolve the following graphs.

Þ  PPC
ü  Shifts v Movements / Þ  Supply, Demand, & Equilibrium
ü  Shifts & Movements
ü  Generate from Schedule
ü  S, QS, & MS
ü  Floors & Ceilings
ü  Shortage & Surplus

General Questions: You should be able to answer & explain the following.

1)  Explain the difference between comparative & absolute advantages. How is each determined in respects to inputs & outputs?

2)  How are PPC, Opportunity Cost, and Comp. Ad./Ab. Ad. Related?

3)  How are supply & demand impacted by changes in their determinants?

a.  What does this mean for price? Why? (graph it)

4)  Why are price floors & ceilings established?

Practice: Below are several practice scenarios. Once you’ve worked them out, or if you run into problems, you may email me for the solutions & to ask questions.

1.  PPC Schedule: Create a PPC using the schedule below, and then answer the following questions.

A / B / C / D / E / F
Fireworks / 0 / 25 / 75 / 110 / 130 / 140
Tractor / 12 / 11 / 9 / 6 / 3 / 0

* In millions of units

a)  If the economy is currently producing at point “D”, what is the opportunity cost of producing 30 additional units of fireworks?

b)  If the economy is currently producing at point “C”, what is the opportunity cost of producing two more units of tractors?

c)  Which product does this economy have the absolute & comparative advantage in if, in 1 hour, it can make either 140 units of fireworks or 12 units of tractors.

** As for supply & demand graphing practice, please access the websites posted on MyWiki for interactive practice! Good Luck J