AP Microeconomics — Unit 1: Basic Economic Concepts

What AP Microeconomics Unit 1 covers

The College Board Course and Exam Description breaks Unit 1 into 6 topics:

1. 1.1 Scarcity
2. 1.2 Resource Allocation and Economic Systems
3. 1.3 The Production Possibilities Curve
4. 1.4 Comparative Advantage and Gains from Trade
5. 1.5 Cost-Benefit Analysis
6. 1.6 Marginal Analysis and Consumer Choice

AP Microeconomics Unit 1 practice questions

• Jeff Bezos has $200 billion. Does he still face scarcity — and why?

  Scarcity means we have unlimited wants but limited resources to fulfill them. Because of scarcity, individuals, businesses, and governments must make choices — and every choice has a cost. Economics is fundamentally the study of how we deal with scarcity.

• You want to start a food truck. You've got a parking spot, a cook, and the truck itself — but nobody brave enough to risk their savings on the idea. Which factor of production are you missing?

  Entrepreneurship — the risk-taking founder. It combines land (parking spot), labor (cook), and capital (truck) and takes the risk.

• North Korea assigns workers to state factories. The US lets consumers choose what to buy. Despite opposite approaches, both countries are trying to solve the same fundamental problem. What is it?

  Every economy must answer: what, how, and for whom to produce. Command economies decide all three centrally; markets answer through prices.

• Cuba's government tells factories what to produce. A US farmer plants whatever she thinks will sell best. What's the fundamental difference between how these two economies are organized?

  A command economy versus a market economy. Cuba's government decides what/how/for whom; the US relies on prices — every economy is mixed.

• A country makes only laptops and wheat. A planner picks a combo sitting right ON the curve and calls it 'the best choice.' What does a point on the PPC actually guarantee — and what does it NOT?

  It guarantees efficiency, not which combo is best. On the curve = efficient (all resources used); it shows what's possible, not what's optimal.

• A recession hits — factories idle, millions laid off. Where does the economy move on its PPC, and does it need MORE resources to recover?

  It moves to a point inside the curve (idle resources). Recovery needs no new resources — just put idle ones back to work.

• A country's PPC for cars and corn curves outward like a bow. But its PPC for plastic forks and plastic spoons is a straight line. Why the different shapes?

  Bowed out (concave) = increasing opportunity cost. Resources aren't equally suited for both goods — producing more of one means giving up increasingly more of the other. Straight line = constant opportunity cost. Resources are equally adaptable between the two goods.

• A country discovers huge new oil reserves. Its rival just runs a campaign telling citizens to WANT more stuff. Only one of these shifts the PPC outward. Which — and why?

  The oil find shifts the PPC out — more resources, more output. Wanting more does nothing; growth needs more/better resources or technology.

+ 17 more AP Microeconomics cards in the app.

Key terms in Unit 1

These 6 terms show up in the Unit 1 cards. Each one links to its definition in the AP Microeconomics key-term reference.

• absolute advantage
• comparative advantage
• opportunity cost
• recession
• scarcity
• terms of trade