High School Economics practice questions and exam guide

The price of coffee beans (an input to iced-coffee production) rises sharply. In the market for iced coffee, the most likely SHORT-RUN result is:

1. The supply curve shifts LEFT, raising the equilibrium price and lowering equilibrium quantity
2. The demand curve shifts left because iced coffee is more expensive
3. A movement up along the supply curve
4. No change, because iced coffee prices are sticky

Answer: A — The supply curve shifts LEFT, raising the equilibrium price and lowering equilibrium quantity

A) Higher input costs shift SUPPLY left. Result: higher P, lower Q. B) Common trap — the price change is a CONSEQUENCE of the supply shift; demand doesn't move because of the input cost. C) Movements happen only when the good's own price changes for other reasons. D) Prices adjust, especially in retail.

Stocks vs. bonds:

1. Stocks = ownership shares in company (higher risk, higher return); Bonds = loans to issuer (lower risk, fixed interest payments)
2. Same thing
3. Both equally risky
4. Both pay dividends
5. Bonds give voting rights

Answer: A — Stocks = ownership shares in company (higher risk, higher return); Bonds = loans to issuer (lower risk, fixed interest payments)

Equities (stocks): claim on residual profits/assets. Bonds: debt instrument with periodic coupon payments + principal at maturity. Risk-return tradeoff. Personal-finance basics: diversify across asset classes per risk tolerance and horizon.

Compound interest:

1. Has no effect on savings
2. Is the same as simple interest
3. Earns interest on interest in addition to the principal — making savings/investments grow faster over time compared to simple interest; powerful for retirement; conversely, compounds debt costs (e.g., credit cards) for borrowers
4. Is illegal

Answer: C — Earns interest on interest in addition to the principal — making savings/investments grow faster over time compared to simple interest; powerful for retirement; conversely, compounds debt costs (e.g., credit cards) for borrowers

C) Standard concept. A/B/D) Each is incorrect.

Country X can produce 100 widgets or 50 gadgets per worker. Country Y can produce 40 widgets or 40 gadgets per worker. Country X's OPPORTUNITY COST of 1 gadget is:

1. 40 widgets
2. 0.5 widgets
3. 2 widgets — because 1 gadget takes resources that could produce 100/50 = 2 widgets in Country X
4. 100 widgets

Answer: C — 2 widgets — because 1 gadget takes resources that could produce 100/50 = 2 widgets in Country X

C) X gives up 100/50 = 2 widgets for 1 gadget. B) That's the widget opp cost in gadgets (reversed). A) That's Y's widget output. D) X's widget max — not a per-unit cost.

GDP (Gross Domestic Product):

1. Measures population only
2. Equals exports alone
3. Is the total market value of all final goods and services produced within a country's borders in a given period; nominal (current prices) vs. real (inflation-adjusted)
4. Measures only government spending

Answer: C — Is the total market value of all final goods and services produced within a country's borders in a given period; nominal (current prices) vs. real (inflation-adjusted)

C) Standard definition. A/B/D) Each is incorrect.

A progressive income tax is one in which:

1. The same percentage rate applies to all incomes
2. Lower incomes are taxed at higher rates than higher incomes
3. Higher incomes are taxed at higher rates than lower incomes
4. Only corporations pay income tax

Answer: C — Higher incomes are taxed at higher rates than lower incomes

Progressive taxes raise the average rate as income rises (e.g., U.S. federal income tax). Regressive taxes do the opposite; proportional (flat) taxes apply one rate to all.

Monopoly:

1. Free entry
2. Many sellers
3. Identical products
4. Single seller, no close substitutes, significant barriers to entry — can set prices, may capture excess profits; addressed by antitrust laws (Sherman, Clayton Acts), regulated utilities, public ownership

Answer: D — Single seller, no close substitutes, significant barriers to entry — can set prices, may capture excess profits; addressed by antitrust laws (Sherman, Clayton Acts), regulated utilities, public ownership

D) Standard. A/B/C) Each is incorrect.

Gross Domestic Product (GDP) measures:

1. The total number of citizens
2. The market value of all final goods and services produced within a country in a period
3. Total bank deposits
4. Only government spending

Answer: B — The market value of all final goods and services produced within a country in a period

B) Standard expenditure approach: C + I + G + NX. A/C/D) Each is a different aggregate.

Which is a common BARRIER TO ENTRY that helps sustain market power?

1. Patents granting exclusive production rights for a period of time
2. Free access to industry information
3. Widely available substitute products
4. Low fixed costs

Answer: A — Patents granting exclusive production rights for a period of time

A) Patents legally exclude competitors, preserving pricing power. B/C/D) Each is the OPPOSITE of a barrier — these features REDUCE market power.

Globalization and US workers:

1. Trade and offshoring benefited consumers (lower prices) and high-skilled US workers, but displaced many manufacturing workers; complicated by automation, technological change; policy responses include trade adjustment assistance, retraining, infrastructure, tariffs (debated); income inequality has grown
2. No effect
3. Only benefits
4. Only harms

Answer: A — Trade and offshoring benefited consumers (lower prices) and high-skilled US workers, but displaced many manufacturing workers; complicated by automation, technological change; policy responses include trade adjustment assistance, retraining, infrastructure, tariffs (debated); income inequality has grown

A) Standard. B/C/D) Each is incomplete.

AP Macro vs Micro exam:

1. Both: 60 MC (70 min) + 3 FRQ (60 min — 1 long, 2 short); Macro: GDP/AD-AS/policy/money. Micro: supply/demand/firms/markets/externalities
2. Same content
3. Random
4. Has no structure

Answer: A — Both: 60 MC (70 min) + 3 FRQ (60 min — 1 long, 2 short); Macro: GDP/AD-AS/policy/money. Micro: supply/demand/firms/markets/externalities

A) Standard. B/C/D) Each is incorrect.

The law of demand states that, all else equal, as the price of a good rises:

1. Quantity demanded rises
2. Quantity demanded falls
3. Demand shifts right
4. Supply increases

Answer: B — Quantity demanded falls

The law of demand describes the inverse price-quantity relationship: higher prices → less quantity demanded, all else equal.

What is economics?

The study of how people, businesses, and governments allocate scarce resources to satisfy unlimited wants and needs.

What does elastic demand mean?

|Elasticity| > 1. A small price change causes a large quantity change (e.g., luxury goods).

What is the WTO?

World Trade Organization — sets rules for international trade and resolves disputes among member nations.

What is expansionary fiscal policy?

Increased spending or tax cuts to stimulate the economy during recession.

How can governments address negative externalities?

Taxes (Pigouvian), regulations, tradable permits, lawsuits/property rights (Coase theorem).

Worked example: In a small market, demand is Qd = 100 − 2P and supply is Qs = 20 + 2P (P in dollars, Q in units). Find the equilibrium price and quantity.

Step 1 — Equilibrium occurs where Qd = Qs. Step 2 — Set the equations equal: 100 − 2P = 20 + 2P. Step 3 — Solve for P: 100 − 20 = 2P + 2P → 80 = 4P → P* = $20. Step 4 — Plug P* into either equation: Qd = 100 − 2(20) = 100 − 40 = 60, and Qs = 20 + 2(20) = 20 + 40 = 60. ✓ Step 5 — Equilibrium: P* = $20, Q* = 60 units. At any P above $20, Qs > Qd (surplus → price pressure down); below $20, Qd > Qs (shortage → price pressure up).