Unit 1: Basic Economic Concepts
Micro · Unit 1 · Paper 1

Basic Economic Concepts unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 24 terms and is the same for everyone, so a teacher can assign “Unit 1, Paper 1” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 32 min 29 points0/17 attempted
1

Normal profit

2

Absolute advantage

3

Constant opportunity cost

4

Calculating opportunity cost from an output table

5

Allocative efficiency

6

Law of diminishing marginal utility

7

Terms of trade

8

Circular flow model

9

Rational self-interest

10

Ceteris paribus

11

Utility-maximizing rule

12

Scarcity

Short answer 1. Define or explain: Opportunity cost

3 pts

Short answer 2. Define or explain: Positive vs normative statements

3 pts

Short answer 3. Define or explain: Why the PPC bows outward

3 pts

Short answer 4. Define or explain: Economic vs accounting profit

3 pts

Free response

5 pts

This course has no free-response prompt tagged to this unit, so one from elsewhere in the course is used. It is still worth writing — the skill transfers.

SHORT FREE-RESPONSE. Ridgeline Dairy is one of many identical firms in a perfectly competitive market. The market price of milk is $6 per gallon. At Ridgeline’s profit-maximizing output of 100 gallons per day, average total cost is $8 and average variable cost is $5.

Explain the rule Ridgeline uses to choose its profit-maximizing output, and identify its marginal revenue.

Calculate Ridgeline’s daily economic profit or loss, showing your work.

Should Ridgeline continue operating in the short run? Justify your answer with a calculation.

Explain what happens in this market in the long run and what the price will be when adjustment is complete.