AP Microeconomics Unit 2 MCQ

Which of the following explains why the supply curve is upward sloping?

At a higher price, producers are more able to cover the higher marginal cost associated with increasing production.

What are the 5 shifters of demand?

Change in price of related goods/services (substitutes and complements), changes in income, changes in tastes, changes in expectations, changes in the number of consumers

The law of demand states there is an _________ relationship between price and quantity.

Inverse

In which of the following cases would government intervention in a market result in an increase in the quantity sold?

Providing producers of a product with a per unit subsidy

Which of the following would cause the supply of good X to become more elastic?

The ability to easily reallocate inputs to production of good X

If the coefficient is positive, the goods are __________

substitutes

Define producer surplus:

the difference between the price a seller received and what they were willing to sell it for

What's the formula to calculate income elasticity of demand?

% change in quantity demanded/% change in income

At the current prices of goods X and Y, the quantity demanded of good X is 10 units, and the quantity demanded of good Y is 5 units. The cross-price elasticity of demand between goods X and Y is 0.6. A 10 percent increase in the price of good Y will result in which of the following?

A 6 percent increase in the quantity demanded of good X.

Which of the following statements about the price elasticity of demand is true?

As more close substitutes become available, demand tends to become more price elastic.

Which of the following policies would result in an increase in the quantity supplied of a good in a market?

Imposing a binding price floor

How does the total revenue test work to help you determine elasticity of demand?

Inelastic demand-direct relationship between changes in price and total revenue; elastic demand-inverse relationship between changes in price and total revenue

What's the difference between inelastic and elastic demand?

Inelastic: price elasticity of demand is less than 1; elastic: price elasticity of demand is greater than 1

What's the difference between substitutes and complements?

Substitutes-pairs of goods for which a rise in the price of one good causes an increase in the demand for the other good; complements: pairs of goods for which a rise in the price of one good leads to a decrease in demand for the other good

Assume that the market for a good is in equilibrium at a price of $20 and a quantity of 100 units. After the government imposes a $5 per-unit excise tax on the good, the price that buyers pay for the good increases by $3. Which of the following are possible values for the government tax revenue and deadweight loss in the market?

Tax revenue is $300, deadweight loss $100

A change in which of the following causes a movement along a given demand curve for a normal good?

The price of the good

Define deadweight loss:

losses that happen when output is greater than or less than the efficient level

Consider the market for arugula, a normal good. Which of the following changes would result in an increase in both the equilibrium price and the equilibrium quantity of arugula?

An increase in population

Which of the following is true about good J?

Good J is an inferior good because Whether a good is inferior or normal is based on the sign of the income elasticity - with a positive sign indicating that the good is a normal good and a negative sign indicating that the good is an inferior good. The income elasticity of good J is negative (−0.5)(−0.5); therefore, good J is an inferior good.

A firm estimates that the absolute value of the price elasticity of demand for its signature sandwich is 2. If the firm increases its sandwich price by 10 percent, what will happen to the quantity demanded?

It will decrease by 20 percent

What are some characteristics of elastic goods?

Many substitutes, luxuries, take up a large portion of your income, elasticity coefficient is greater than 1

An increase in the price of good X causes buyers to want to buy more of good Y. Which of the following explains the resulting change in the market?

The demand curve for good Y will shift to the right because the goods are substitutes.

Assume that the market for a good is characterized by a downward-sloping demand curve and an upward-sloping supply curve. Suppose that there is an improvement in technology for producing the good. Which of the following would occur?

The total surplus (the sum of consumer and producer surpluses) in the market would increase.

When the price is below equilibrium, we have a _________

shortage

The market supply curve for a product is derived from the individual firm supply curves by

summing the quantities each producer sells at each possible price

Define consumer surplus:

the difference between what a consumer is willing to pay and what they actually pay

What's the formula to calculate elasticity of demand?

% change in quantity demanded/% change in price

What's the formula to calculate cross price elasticity of demand?

% change in quantity of A demanded/% change in price of B

What's the formula to calculate price elasticity of supply?

% change in quantity supplied/% change in price

Which of the following would result in the greatest rightward shift of the demand curve for good J?

A 10%10% decrease in income because a decrease in income will shift demand for good J to the right by 5%(5%(=%=% change in income ×× income elasticity =−10%×−0.5=−10%×−0.5). This is not the greatest rightward shift of the demand curve for good J since answer choice (c)(c) would result in a 20%20% shift (20%>5%)(20%>5%).

What's the 5 shifters of supply?

Changes in input prices, changes in the price of related goods or services, changes in technology, changes in expectations, changes in the number of producers

What are some characteristics of inelastic goods?

Few substitutes, necessities, only take up a small portion of your income, elasticity coefficient is less than 1

Which of the following correctly describes the income effect associated with the law of demand?

If the price of a normal good decreases, the purchasing power of a consumer's income increases and therefore consumers will be willing and able to purchase more of the good.

What's the difference between normal and inferior goods?

Normal: a good for which a rise in income increases the demand for that good; inferior: a good for which a rise in income decreases the demand for that good

Assume that the price of orange juice increases by 40 percent following a crop failure. If the quantity demanded falls by 10 percent, which of the following is true?

The absolute value of the price elasticity of demand for orange juice is 0.25 because the absolute value of the price elasticity of demand is 0.25 and is equal to the percentage change in quantity demanded divided by the percentage change in price, 10%40%10%40%, or 0.25.

The elasticity of demand decreases when moving from point XX to point YY. Why?

The price elasticity of demand decreases as price falls and quantity rises between point XX and YY when moving down along the demand curve. That is, the demand becomes more inelastic along the linear demand curve as price decreases.

The market for tomatoes is in equilibrium at the price of $10, and quantity of 50 tomatoes. If consumer surplus is $400 and total surplus is $650, what is the producer surplus in the tomato market and why?

The producer surplus is $250 , because the total surplus less what consumers receive must go to producers.

The price elasticity of demand for a product is 0.5. If the price of the product increases by 20 percent, which of the following will occur?

The quantity demanded of the good will decrease by 10%.

Which of the following will occur as a result of a decrease in the prices of the inputs used to produce a good?

The quantity supplied would increase at each possible price for the good.

Which of the following is true about the supply curve between the given points? Price: $10 $20 Quantity Supplied: 50 60

The supply curve is inelastic, because the percentage change in the price is greater than the percentage change in the quantity supplied.

Which of the following will initially result from an increase in the market demand for a good?

There will be a temporary shortage at the original equilibrium price.

The law of supply states there is a ___________ relationship between price and quantity.

direct or positive

A demand curve is _______ sloping and a supply curve is __________ sloping.

downward, upward

Suppose the price elasticity of supply for gasoline in the short run is estimated to be 0.4. Due to an unexpected surge in the demand for gasoline, the price of gasoline increases by 20 percent. As a result, the quantity supplied of gasoline will

increase by 8 percent

A shift to the right is an _________; a shift to the left is a __________.

increase, decrease

If the coefficient is negative, the goods are __________

inferior

A 10 percent increase in the price of a good results in a 4 percent increase in total revenue. From this information, it can be concluded that the demand over this range of prices

is inelastic

If the coefficient is negative, the goods are ________

negative

If the coefficient is positive, the goods are___________

normal

A change in ________ doesn't shift the curve, it causes movement along the curve.

price

When the price is above equilibrium, we have a ____________

surplus