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Ap Microeconomics Exam Review / Key
Questions & Verified Answers, 2025 /
2026
Economics-correct-answer-The study of how people, firms, and societies use their
scarce productive resources to best satisfy their unlimited wants
Factors of Production-correct-answer-Labor, Land, Capital, Entrepreneurial ability
Physical capital-correct-answer-Manmade equipment like machinery, but also
buildings, roads, vehicles, and computers
Entrepreneurial Ability-correct-answer-The effort and know how to put the other
resources (Factors of Production) together in a productive venture
Scarcity-correct-answer-The difference between unlimited wants and limited
economic resources
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Trade-offs-correct-answer-The fact that we are faced with scarce resources
implies that individuals, firms, and governments are constantly faced with trade-
offs
Opportunity Cost-correct-answer-The opportunity cost of doing something is
what you sacrifice to do it (i.e. if you use a scarce resource to pursue activity X, the
opportunity cost of activity X is activity Y, the next best use of that resource)
Marginal Analysis-correct-answer-Rational individuals and firms weigh the
additional benefits against the additional costs (They think at the margin)
Marginal-correct-answer-"the next one" or "additional" or "incremental"
Marginal Cost-correct-answer-The additional cost incurred from the consumption
of the next unit of a good or service
Marginal Benefit-correct-answer-The additional benefit received from the
consumption of the next unit of a good or service
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Production Possibilities Curve-correct-answer-A model of an individual or a nation
that can choose to allocate its scarce resources between the production of two
goods or services, it is assumed that those resources are being fully employed and
used efficiently
Points outside of the Production Possibilities Curve-correct-answer-Any point
outside the frontier is currently unattainable
The slope of the PPF-correct-answer-The slope of the curve measures the
opportunity cost of the good on the x axis
The inverse of the slope measures the opportunity cost of the good on the y axis
Shape of a realistic PPF-correct-answer-Concave or bowed outward
Comparative Advantage-correct-answer-The ability to produce goods at a lower
opportunity cost that another individual/firm/nation
Specialization-correct-answer-Individuals/firms/nations produce the goods in
which they have a comparative advantage
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Productive efficiency-correct-answer-The economy is producing the maximum
output for a given level of technology and resources (all points on the PPF are
productively efficient)
Allocative efficiency-correct-answer-The economy is producing the optimal mix of
goods and services (the combination of goods and services that provides the most
net benefit to society; the best point on the PPF)
Substitution effect-correct-answer-The change in quantity demanded resulting
from a change in the price of one good relative to the price of other goods
Diseconomies of Scale-correct-answer-The upward part of the LRAC curve where
LRAC rises as plant size increases. This is usually the result of the increased
difficulty of managing larger firms which results in lost efficiency and rising per
unit costs
Characteristics of Perfect Competition-correct-answer--Many small independent
producers and consumers
-Firms produce a standardized product
-No barriers to entry/exit
-Firms are "price takers"
Ap Microeconomics Exam Review / Key
Questions & Verified Answers, 2025 /
2026
Economics-correct-answer-The study of how people, firms, and societies use their
scarce productive resources to best satisfy their unlimited wants
Factors of Production-correct-answer-Labor, Land, Capital, Entrepreneurial ability
Physical capital-correct-answer-Manmade equipment like machinery, but also
buildings, roads, vehicles, and computers
Entrepreneurial Ability-correct-answer-The effort and know how to put the other
resources (Factors of Production) together in a productive venture
Scarcity-correct-answer-The difference between unlimited wants and limited
economic resources
,2|Page
Trade-offs-correct-answer-The fact that we are faced with scarce resources
implies that individuals, firms, and governments are constantly faced with trade-
offs
Opportunity Cost-correct-answer-The opportunity cost of doing something is
what you sacrifice to do it (i.e. if you use a scarce resource to pursue activity X, the
opportunity cost of activity X is activity Y, the next best use of that resource)
Marginal Analysis-correct-answer-Rational individuals and firms weigh the
additional benefits against the additional costs (They think at the margin)
Marginal-correct-answer-"the next one" or "additional" or "incremental"
Marginal Cost-correct-answer-The additional cost incurred from the consumption
of the next unit of a good or service
Marginal Benefit-correct-answer-The additional benefit received from the
consumption of the next unit of a good or service
,3|Page
Production Possibilities Curve-correct-answer-A model of an individual or a nation
that can choose to allocate its scarce resources between the production of two
goods or services, it is assumed that those resources are being fully employed and
used efficiently
Points outside of the Production Possibilities Curve-correct-answer-Any point
outside the frontier is currently unattainable
The slope of the PPF-correct-answer-The slope of the curve measures the
opportunity cost of the good on the x axis
The inverse of the slope measures the opportunity cost of the good on the y axis
Shape of a realistic PPF-correct-answer-Concave or bowed outward
Comparative Advantage-correct-answer-The ability to produce goods at a lower
opportunity cost that another individual/firm/nation
Specialization-correct-answer-Individuals/firms/nations produce the goods in
which they have a comparative advantage
, 4|Page
Productive efficiency-correct-answer-The economy is producing the maximum
output for a given level of technology and resources (all points on the PPF are
productively efficient)
Allocative efficiency-correct-answer-The economy is producing the optimal mix of
goods and services (the combination of goods and services that provides the most
net benefit to society; the best point on the PPF)
Substitution effect-correct-answer-The change in quantity demanded resulting
from a change in the price of one good relative to the price of other goods
Diseconomies of Scale-correct-answer-The upward part of the LRAC curve where
LRAC rises as plant size increases. This is usually the result of the increased
difficulty of managing larger firms which results in lost efficiency and rising per
unit costs
Characteristics of Perfect Competition-correct-answer--Many small independent
producers and consumers
-Firms produce a standardized product
-No barriers to entry/exit
-Firms are "price takers"
