Basic economic concepts practice questions (AP Macroeconomics)

Sample questions

All 4 free AP Macroeconomics questions on this unit, from the free AP Macroeconomics Practice Test and the free AP Macroeconomics Multiple Choice Questions with Answers. Each answer is behind its own toggle; the whole paper, its PDF and the full answer key are on the exam page.

1. Question 12 marks · PPC & economic growth
   Which of the following would shift a country's production possibilities curve outward?
   • A.
     A decrease in the unemployment rate
   • B.
     An increase in the size of the labor force
   • C.
     A reallocation of resources from capital goods to consumer goods
   • D.
     An increase in aggregate demand
   • E.
     A rise in the general price level
   Show answerFrom the free AP Macroeconomics Practice Test →
2. Question 21 mark · Scarcity, PPC & comparative advantage
   Using all of its resources, Lorane can produce either 120 tons of rice or 40 tons of steel per year, or any combination along a straight-line production possibilities curve. Kesh can produce either 80 tons of rice or 40 tons of steel. Which of the following is correct?
   • A.
     Lorane has a comparative advantage in steel because it has an absolute advantage in rice
   • B.
     Lorane has a comparative advantage in both goods because it can produce at least as much of each good as Kesh
   • C.
     Kesh has a comparative advantage in rice because its opportunity cost of a ton of rice is 2 tons of steel
   • D.
     Neither country can gain from trade because both can produce the same maximum amount of steel
   • E.
     Kesh has a comparative advantage in steel because its opportunity cost of a ton of steel is 2 tons of rice, compared with 3 tons for Lorane
   Show answerFrom the free AP Macroeconomics Multiple Choice Questions with Answers →
3. Question 31 mark · Scarcity, PPC & comparative advantage
   In Avalon a worker can make 6 chairs or 3 tables in a day; in Brinn a worker can make 4 chairs or 4 tables in a day. If each country specializes according to its comparative advantage and they trade, which of the following terms of trade would benefit both countries?
   • A.
     1 table for 0.5 chair
   • B.
     1 chair for 1.5 tables
   • C.
     1 table for 2.5 chairs
   • D.
     1 table for 1.5 chairs
   • E.
     1 table for 3 chairs
   Show answerFrom the free AP Macroeconomics Multiple Choice Questions with Answers →
4. Question 41 mark · Scarcity, PPC & comparative advantage
   Pell and Quor currently have identical production possibilities curves between capital goods and consumer goods. Pell chooses a point on its curve with more capital goods and fewer consumer goods than Quor. Other things equal, over the next decade:
   • A.
     Pell's production possibilities curve will shift outward by more than Quor's
   • B.
     Quor's production possibilities curve will shift outward by more than Pell's, because consumption spending drives growth
   • C.
     Both curves will shift outward by the same amount, since both countries are producing efficiently on their curves
   • D.
     Pell's production possibilities curve will shift inward because it is sacrificing current consumption
   • E.
     Pell will move to a point inside its production possibilities curve because capital goods cannot be consumed
   Show answerFrom the free AP Macroeconomics Multiple Choice Questions with Answers →

Key terms

The definitions and formulas AP Macroeconomics expects for basic economic concepts, typeset as they appear on the paper.

Scarcity and opportunity cost

Resources are limited relative to wants, so every choice has an opportunity cost: the value of the next best alternative forgone. The exam asks for opportunity cost as a number of units of the other good, read from a PPC or a table.

Production possibilities curve (PPC)

The combinations of two goods an economy can produce at full employment. A straight PPC means constant opportunity cost; a bowed-out PPC means increasing opportunity cost. Growth (more resources, better technology) shifts it outward.

Absolute and comparative advantage

Absolute advantage is producing more with the same inputs; comparative advantage is producing at a lower opportunity cost. Countries gain from specialising by comparative advantage and trading at terms between the two opportunity costs.

$$\text{opportunity cost of 1 unit of } X = \frac{\text{units of } Y \text{ forgone}}{\text{units of } X \text{ gained}}$$

Terms of trade

The rate at which two countries exchange goods. Both gain only when the rate lies between their opportunity costs, which is the test an FRQ expects you to apply.

Supply, demand and equilibrium

Demand slopes down, supply slopes up, and the market clears where they cross. Shifts come from non-price determinants (income, tastes, input costs, expectations); a price change is a movement along a curve, not a shift.

Marginal analysis

Decisions are made at the margin: do more of an activity while marginal benefit exceeds marginal cost, and stop where they are equal.

$$MB = MC$$

Frequently asked questions

Other AP Macroeconomics topics

• Economic indicators and the business cycle
• National income and price determination
• Financial sector
• Long-run consequences of stabilization policies
• Open economy: international trade and finance

All AP Macroeconomics topics · All free practice exams