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AP Microeconomics › Unit 1
AP Microeconomics Unit 1: Basic Economic Concepts
12 to 15% of the exam · 180 practice questions · 12 free-response questions
Microeconomics starts with choices made under scarcity. Unit 1 covers opportunity cost, the production possibilities curve, comparative advantage, and how economic systems allocate resources. It ends with marginal analysis: keep doing something while its marginal benefit exceeds its marginal cost, and spend so that marginal utility per dollar is equal across goods. Expect to calculate opportunity costs from tables and decide who should specialize. Students often choose using total utility rather than marginal utility per dollar. Another mistake is letting sunk costs, which cannot be recovered, sway a decision.
Practice this unit
White belt covers core terms and foundational ideas, Regular is set at exam level, and Black belt has harder multi-step questions.
Topics in this unit
- 1.1 Scarcity (19 questions)
- 1.2 Resource Allocation and Economic Systems (26 questions)
- 1.3 Production Possibilities Curve (34 questions)
- 1.4 Comparative Advantage and Trade (30 questions)
- 1.5 Cost-Benefit Analysis (23 questions)
- 1.6 Marginal Analysis and Consumer Choice (48 questions)
Free-response questions
- Alta and Borea: Comparative Advantage and Trade (Long question, 10 points)
- Rushland’s Production Possibilities (Long question, 10 points)
- Pemba and Tolu: Hours Per Unit (Short question, 5 points)
- Library Hours: Marginal Analysis (Short question, 5 points)
- Pizza and Soda: Consumer Choice (Short question, 5 points)
- Two Economies, Two PPCs (Short question, 5 points)
- What Moves the PPC? (Short question, 5 points)
- Dana’s Pots and Baskets (Long question, 10 points)
- Choosing a City Project (Short question, 5 points)
- Guitar Practice: Marginal Benefit and Marginal Cost (Long question, 10 points)
- Ren’s Summer Food Cart: Explicit and Implicit Costs (Short question, 5 points)
- Velra’s PPC: Capital Goods, Growth, and an Earthquake (Short question, 5 points)
Sample questions
These are taken from the Regular set, with the answer and explanation shown.
Topic 1.1 Scarcity
1. A city uses tax revenue to give residents free bus rides. Which statement is correct?
- AThe rides have an opportunity cost, since the resources have other uses
- BThe rides have no cost, because riders do not pay a fare
- CThe rides are costly only if the city borrows the money
- DThe rides have a cost only for the residents who never ride the buses at all
- EThe rides end scarcity of transportation in the city
Answer: A. The buses, drivers, and fuel could have been used for other purposes. Their best alternative use is the opportunity cost, whether or not riders pay.
Common trap: Equating price with cost. Price is what the user pays; cost is what society gives up.
Topic 1.2 Resource Allocation and Economic Systems
2. Which of the following best describes the role of incentives in a market economy?
- AFirms ignore prices and follow fixed production quotas
- BGovernment orders tell workers where to work and what to make
- CTradition determines which jobs people take and how goods are shared
- DProfits and prices push resources toward their most valued uses
- EConsumers receive goods without regard to their willingness to pay
Answer: D. In markets, prices and profits act as incentives. They encourage firms and workers to move resources toward the goods people value most.
Common trap: Choosing a description of a command or traditional economy.
Topic 1.6 Marginal Analysis and Consumer Choice
3. A company spent $2 million developing a product. It now learns that finishing the product will cost $1 million more, and the finished product will earn $1.5 million in revenue. What should the company do?
- AAbandon it, because it has already lost $2 million
- BAbandon it, because total costs of $3 million exceed revenue
- CFinish, because the extra revenue exceeds the extra cost
- DFinish it only if it can recover the $2 million
- EAbandon it, because sunk costs must be recovered first
Answer: C. The $2 million is sunk and should be ignored. Finishing costs $1 million more and brings in $1.5 million, a gain of $0.5 million compared with stopping.
Common trap: Counting the $2 million already spent. It is gone whether the company finishes or stops, so it should not change the choice.