AP Microeconomics Unit 1 – Basic Economic Concepts: Ultimate Study Notes

What is the definition of opportunity cost?

The value of the next-best alternative forgone

Which of the following points on a PPC represents an inefficient use of resources?

Inside the curve

What does a bowed-outward PPC illustrate?

Increasing opportunity cost

Marginal analysis involves comparing:

Marginal benefit vs. marginal cost

Which is a factor of production?

Capital

What happens when the price of a good rises and the quantity demanded falls?

Law of Demand applies

Which is a determinant (shifter) of demand?

Number of buyers

Which is a determinant (shifter) of supply?

Technology

Market equilibrium occurs when:

Quantity demanded equals quantity supplied

A price floor set above equilibrium will cause:

Surplus

Which of the following increases consumer surplus?

Price decreases

Price elasticity of demand is defined as:

%ΔQd / %ΔP

Cross-price elasticity is positive for:

Substitutes

A tax on sellers causes:

Supply curve shifts left

Deadweight loss (DWL) occurs when:

Resources are inefficiently allocated

What is the main role of prices in a market economy?

To signal scarcity and coordinate decisions

If a good is a necessity with few substitutes, its demand is likely:

Inelastic

When an economy grows, the PPC shifts:

Outward

What is consumer surplus?

Willingness to pay minus price

Which of the following is NOT a type of economic system?

Arbitrary