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Economics

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Jan 9, 2024

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_____________ AP Microeconomics Test: Basic Economic Concepts Page 1 of 6 User Name:_______________ (print clearly) Instructor: _________________ Date:__________ Directions Neatly write your responses in the spaces provided. Use a blue or black pen. Don’t write in the margins. Remember to complete the submission information on every page you turn in. Free Response Questions: 1. Economic Analysis A. Define opportunity cost. (2 points) How is it used in economic analysis? (3 points) B. What are sunk costs? (2 points) How are they used in economic decision making? (3 points) Copyright © 2021 Apex Learning. See Terms of Use for further information. Opportunity cost is the value of the next best alternative forgone when a decision is made. In economic analysis, it serves as a crucial concept to assess trade-offs, allowing economists and decision-makers to evaluate the true cost of choosing one option over another and make informed choices based on the relative benefits and sacrifices involved. Sunk costs are expenditures that have already been incurred and cannot be recovered. In economic decision-making, recognizing and ignoring sunk costs is essential, as they should not influence current decisions; instead, decisions should be based on future costs and benefits to optimize resource allocation and maximize overall value.
_____________ AP Microeconomics Page 2 of 6 Test: Basic Economic Concepts User Name:_______________ Instructor: _________________ Date:__________ (print clearly) C. Suppose your MP3 player cost $30 in repairs over the past six months. If it stops working again, requiring another $30 in repairs, would you repair it or replace it? Use the concept of sunk costs in your explanation. (6 points) 2. Define absolute and comparative advantage. (6 points) Copyright © 2021 Apex Learning. See Terms of Use for further information. In deciding whether to repair or replace the MP3 player, the sunk cost of the previous $30 in repairs should be disregarded. The decision should be based on the current repair cost versus the cost of a new MP3 player, evaluating future benefits rather than considering unrecoverable past expenses. If the repair cost is reasonable and the player still meets your needs, repairing it might be the economically rational choice. Absolute advantage refers to a situation where a country, individual, or entity can produce a good or service more efficiently using fewer resources than another. Comparative advantage, on the other hand, is the ability of a country, individual, or entity to produce a good or service at a lower opportunity cost compared to another, even if it may not have an absolute efficiency advantage in any specific production aspect. These concepts form the basis for understanding specialization and trade in international economics.
_____________ AP Microeconomics Page 3 of 6 Test: Basic Economic Concepts User Name:_______________ Instructor: _________________ Date:__________ (print clearly) 3. List the four steps in the scientific method. (4 points) 4. Positive and Normative Economics A. What is the difference between positive and normative economics? (4 points) Copyright © 2021 Apex Learning. See Terms of Use for further information. The scientific method involves four key steps: making observations, forming a testable hypothesis, conducting experiments to gather data, and drawing conclusions based on the results, leading to the refinement or rejection of the initial hypothesis. This systematic approach is fundamental to scientific inquiry and the advancement of knowledge. Positive economics involves the objective analysis of economic phenomena, focusing on facts and cause-and-effect relationships without incorporating value judgments. In contrast, normative economics is concerned with subjective evaluations and prescriptions, involving opinions on what ought to be done based on personal or societal values and beliefs.
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