AP Econ Final Review
What price represents the shut-down price in the short run?
$10
Quantity of swordfish (millions of lbs / year) Price of swordfish (per lb) Quantity demanded Quantity supplied $20 6 15 $18 7 13 $16 8 11 $14 9 9 $12 10 7 If the government establishes a quota of 7 million pounds in the market, what will the supply price of swordfish be (per pound)?
$12
Quantity of swordfish (millions of lbs / year) Price of swordfish (per lb) Quantity demanded Quantity supplied $20 6 15 $18 7 13 $16 8 11 $14 9 9 $12 10 7 If the government establishes a quota of 7 million pounds in the market, what will the demand price of swordfish be (per pound)?
$18
How much does a price floor of $5 cost the government if it maintains the price floor by buying any surplus corn?
$2,000
Explicit Costs Implicit Costs Tuition $17,000 Forgone Salary $35,000 Books and Supplies $1,000 Computer $1,500 Total Explicit Cost $19,500 Total Implicit Cost $35,000 Total opportunity cost = total explicit cost + total implicit cost = $54,500 A rational person would attend another year of college if the additional income expected plus the value of improved quality of life were worth at least
$54,000
Quantity of swordfish (millions of lbs / year) Price of swordfish (per lb) Quantity demanded Quantity supplied $20 6 15 $18 7 13 $16 8 11 $14 9 9 $12 10 7 If there is a quota of 7 million pounds and swordfish fishing licenses are traded in a market, how much will the price of a fishing license be per pound?
$6
Quantity of swordfish (millions of lbs / year) Price of swordfish (per lb) Quantity demanded Quantity supplied $20 6 15 $18 7 13 $16 8 11 $14 9 9 $12 10 7 What is the quota rent per pound of swordfish received by licensed fishing boats when the government sets a quota of 7 million pounds?
$6
How much revenue do corn farmers receive if there is a price floor at $5?
$6,000
How much revenue would the government collect from the tax on jeans?
$600
Buyers in the jean market gain _____ in consumer surplus before the imposition of the tax, and they gain ____ in consumer surplus after the imposition of the tax.
$625, $400
The deadweight loss caused by the tax on jeans is
$75
Using the midpoint method, the price elasticity of supply between points J and E is _____ and economists would classify it as _____.
0.33, inelastic
If the government sets a price floor of $5/bushel, how many bushels of corn are produced?
1,200
Using the midpoint method, the price elasticity of demand between points C and E is ____ and economists would classify it as ____.
1.5, elastic
Maximum annual output options Quantity of potatoes (pounds) Quantity of fish (pounds) A 1,000 p 0 f B 800 p 300 f C 600 p 500 f D 400 p 600 f E 200 p 650 f F 0 p 675 f If Atlantis is efficient in production, what is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?
200 pounds of fish
If the government sets a price ceiling at $400, how many apartments will be demanded by consumers?
220,000
Suppose the government levies a tax on the buyers of jeans that shifts the demand curve from D1 to DT, Using the diagram, determine the amount of the tax per pair of jeans sold.
30
Now suppose a decrease in the demand for tomatoes brings the market price down to $15. How many tomatoes should be produced in order to maximize profit?
4
How many bushels of corn are purchased by the government if it maintains a price floor of $5 by buying all the surplus corn?
400
Quantity of Tomatoes Q (bushels) Total Cost TC Marginal Cost of Bushel MC= 0 $14 $16 1 $30 $6 2 $36 $8 3 $44 $12 4 $56 $16 5 $72 $20 6 $92 $24 7 $116 If this business can sell all it can produce at a market price of $16, the firm should produce how many units in order to maximize profits?
5
Suppose an increase in the demand for tomatoes brings the market price up to $22. How many tomatoes should be produced in order to maximize profit?
6
If the government sets a price floor of $5/bushel, how many bushels of corn are purchased by consumers?
800
If 2 goods are complements, an increase in the price of one good will cause which of the following?
A decrease in the demand for the other
An increase in the wages of workers producing a good will most likely lead to which of the following?
A decrease in the supply of the good
Quantity of ball toss games Total utility (utils) 0 0 1 70 2 130 3 180 4 220 5 250 6 270 7 280 Quantity of video games Total utility (utils) 0 0 1 30 2 55 3 75 4 90 5 100 6 105 7 109 8 112 9 114 If Jill purchased 5 video games and 1 ball toss game, she would receive ____ and ____.
A marginal utility of 10 from her last video game, A marginal utility of 70 from her last ball toss game
Falling output in an economy is consistent with which of the following?
A recession
A price ceiling set at $400 will result in which of the following in the market for apartments?
A shortage of 40,000 apartments
In the ancient country of Roma, only two goods - spaghetti and meatballs - are produced. There are 2 tribes in Roma, the Tivoli and the Frivoli. By themselves, in a given month, the Tivoli can produce 30 lbs of spaghetti and no meatballs, 50 lbs of meatballs and no spaghetti, or any combination in between. In the same month, the Frivoli can produce 40 lbs of spaghetti and no meatballs, 30 lbs of meatballs and no spaghetti, or any combination in between. In A.D. 100, the Frivoli discovered a new technique for making meatballs and doubled the quantity of meatballs they could produce each month. After the discovery of this new technique in Frivoli only, which tribe had an absolute advantage in meatball production and which had a comparative advantage in meatball production?
Absolute Advantage: Frivoli Comparative Advantage: Tivoli
Which of the following will most likely result in a decrease in the quantity of lemons demanded?
An increase in the price of lemons
Suppose Jolene buys apples weekly. If the price of apples were to drop, Jolene would experience _____ in ____.
An increase, consumer surplus.
Where must an effective price ceiling in this market be set?
Below $500
Which of the following statements about the tax on jeans is true?
Buyers bear a smaller tax burden than sellers, since demand is more elastic than supply.
Which of the following pairs indicates a category of resources and an example of that resource?
Category: Land Resource: Timber
Which of the following events will increase both the price and the quantity of pizza?
Consumer income falls and pizza is an inferior good
Which of the following situations is explained by increasing opportunity costs?
Convenience stores cater to busy people
When transactions do not occur due to price or quantity controls, what is the term for the lost gains?
Deadweight loss
Suppose the government levies a tax of $0.50 / pack on the buyers of cigarettes. Suppose also that the price elasticity of demand for cigarettes is 1.2 and the price elasticity of supply is 0.7. After this tax is levied, total surplus will ____, and the price received by producers (not including the tax) will _____.
Decrease, fall by less than $0.50.
Quantity of ball toss games Total utility (utils) 0 0 1 70 2 130 3 180 4 220 5 250 6 270 7 280 Quantity of video games Total utility (utils) 0 0 1 30 2 55 3 75 4 90 5 100 6 105 7 109 8 112 9 114 Suppose that video games still cost $0.50 and the ball toss still costs $2, but Jill now has $10.50 to spend at the arcade. If Jill chooses her optimal consumption bundle, she will purchase 9 video games and 3 games of ball toss.
Her total utility will be 280.
In the ancient country of Roma, only two goods - spaghetti and meatballs - are produced. There are 2 tribes in Roma, the Tivoli and the Frivoli. By themselves, in a given month, the Tivoli can produce 30 lbs of spaghetti and no meatballs, 50 lbs of meatballs and no spaghetti, or any combination in between. In the same month, the Frivoli can produce 40 lbs of spaghetti and no meatballs, 30 lbs of meatballs and no spaghetti, or any combination in between. Which of the following is a basic source of economic growth in the production possibilities model?
Improved technology
Jeans and product X (not shown) have a cross price elasticity of 3.7. After the imposition of the tax on the jeans, buyers' consumption of product X would _____ because jeans and product X are _____.
Increase, substitutes
When the price of a normal good falls, consumers will _______ the quantity they want, in part because they now have more money to spend on these units, which economists call _____.
Increase, the income effect
Maximum annual output options Quantity of potatoes (pounds) Quantity of fish (pounds) A 1,000 p 0 f B 800 p 300 f C 600 p 500 f D 400 p 600 f E 200 p 650 f F 0 p 675 f As Atlantis produces more potatoes, what is true about the opportunity cost of producing potatoes?
It continually increases
Jill is waiting to sell her used calculator for $20. Her friend Jack is willing to pay $90 for a used calculator. They agree and trade at a price of $50. Which of the following is correct?
Jill's individual producer surplus is $30
In a market economy, most choices about production and consumption are made by which of the following?
Many individuals and firms
In the ancient country of Roma, only two goods - spaghetti and meatballs - are produced. There are 2 tribes in Roma, the Tivoli and the Frivoli. By themselves, in a given month, the Tivoli can produce 30 lbs of spaghetti and no meatballs, 50 lbs of meatballs and no spaghetti, or any combination in between. In the same month, the Frivoli can produce 40 lbs of spaghetti and no meatballs, 30 lbs of meatballs and no spaghetti, or any combination in between. Which tribe has a comparative advantage in meatball and spaghetti production?
Meatballs: Tivoli Spaghetti: Frivoli
A survey indicated that chocolate is America's favorite ice cream flavor. Which of the following will lead to a decrease in the price of chocolate ice cream?
New freezer technology lowers the cost of producing ice cream.
A price ceiling set at $600 will result in which of the following in the market for apartments?
No surplus or shortage
Which kind of profit is just enough to keep a firm operating in the long-run?
Normal
Maximum annual output options Quantity of potatoes (pounds) Quantity of fish (pounds) A 1,000 p 0 f B 800 p 300 f C 600 p 500 f D 400 p 600 f E 200 p 650 f F 0 p 675 f Which of the following combinations of output is efficient?
Pounds of Potatoes: 1,000 Pounds of Fish: 0
Maximum annual output options Quantity of potatoes (pounds) Quantity of fish (pounds) A 1,000 p 0 f B 800 p 300 f C 600 p 500 f D 400 p 600 f E 200 p 650 f F 0 p 675 f Atlantis can produce which of the following combinations of output?
Pounds of Potatoes: 400 Pounds of Fish: 600
Suppose market prices for potatoes were to increase by 10%, and potato farmers wanted to know whether or not their overall total revenues would rise or fall as a consequence. The farmers could figure this out by calculating which of the following economic concepts?
Price elasticity of demand
What are the market equilibrium price and quantity in the market for corn?
Price: $3 Quantity: 1,000
Which of the following is a goal for the macroeconomy?
Rising aggregate output
Suppose the government levies a tax of $0.50 / pack on the buyers of cigarettes. Suppose also that the price elasticity of demand for cigarettes is 1.2 and the price elasticity of supply is 0.7. If economists were to study the tax incidence in this cigarette market, they would conclude which of the following?
The burden of this tax falls more on producers than consumers.
Which of the following will occur if consumer incomes increase?
The demand for normal goods will increase
You can either go to a movie or study for an exam. Which of the following is an opportunity cost of studying for the exam?
The enjoyment from seeing the movie
Which of the following is a normative statement?
The government should increase the minimum wage.
Which of the following changes will most likely result in an increase in the demand for hamburgers in your hometown?
The number of vegetarians in your town decreases and the population size remains the same.
Pizza and soda are often consumed together at Joe's diner. Suppose that the price of pizza rises from $0.75 / slice to $1.25 / slice, ad consequently April sales pizza drop from 1,050 to 950 slices. Using the midpoint method and this information, an economist could conclude the following:
The price elasticity of demand is 0.2.
Which of the following is true at the equilibrium price in a market?
The quantity demanded of the good equals the quantity supplied.
In the ancient country of Roma, only two goods - spaghetti and meatballs - are produced. There are 2 tribes in Roma, the Tivoli and the Frivoli. By themselves, in a given month, the Tivoli can produce 30 lbs of spaghetti and no meatballs, 50 lbs of meatballs and no spaghetti, or any combination in between. In the same month, the Frivoli can produce 40 lbs of spaghetti and no meatballs, 30 lbs of meatballs and no spaghetti, or any combination in between. Comparative advantage explains which of the following?
The source of grains from trade.
Which of the following changes will most likely result in a decrease in the supply of guitars?
The wages of guitar makers increase
Diminishing marginal returns always involve
a fixed input
Compared to a monopolistically competitive industry, an oligopoly has
a higher Herfindahl-Hirschman Index, fewer firms, and more barriers to entry
Compared to a monopoly, an oligopoly has
a lower Herfindahl-Hirschman Index, more firms, and fewer barriers to entry
The relationship between the marginal cost curve and the average cost curve is that when marginal cost is
above average cost, average cost must be rising
Quantity of ball toss games Total utility (utils) 0 0 1 70 2 130 3 180 4 220 5 250 6 270 7 280 Quantity of video games Total utility (utils) 0 0 1 30 2 55 3 75 4 90 5 100 6 105 7 109 8 112 9 114 At the arcade, Jill likes the video games, which cost $0.50 to play, and the ball toss, which costs $2 to play. She has $6 to spend at the arcade. If Jill maximizes her utility, she will
achieve a total utility of 220.
Suppose the government levies a tax of $0.50 / pack on the buyers of cigarettes. Suppose also that the price elasticity of demand for cigarettes is 1.2 and the price elasticity of supply is 0.7. Because this tax is levied on the sale of a specific good, it is
an excise tax.
Comparing accounting profit to economic profit, accounting profit can
be equal to or more than economic profit.
Diseconomies of scale can be caused by
communication problems
Average total cost is minimized by producing the level of output where the marginal cost
curve intersects the average total cost curve
Monopolistically competitive industries are characterized by
differentiated products, many firms, and easy entry and exit
Marginal cost rises due to
diminishing marginal returns
The long-run average cost curve eventually slopes up due to
diseconomies of scale
A fixed input
does not change with the output level in the short run
Suppose the government levies a tax of $0.50 / pack on the buyers of cigarettes. Suppose also that the price elasticity of demand for cigarettes is 1.2 and the price elasticity of supply is 0.7. In this example, cigarettes have
elastic demand.
In the long run for a perfectly competitive constant-cost industry, if existing firms are producing where price is greater than average total cost, firms will enter the industry, price will
fall, and existing firms will decrease population
The spreading effect causes the average total cost curve to
fall, while the diminishing returns effect causes it to rise
In the short-run, as output increases, average fixed cost
falls continuously
The long-run industry supply curve for a perfectly competitive firm is
flatter and more elastic than the short-run supply curve
For a perfectly competitive industry, the short-run industry supply curve is determined by
horizontally summing all the firm's supply curves
When a firm makes production decisions, the sunk cost should be
ignored
Assume a perfectly competitive firm is producing at a level of output where marginal revenue is greater than marginal cost. To maximize profits, the firm should
increase output
If marginal product is positive and declining as more workers are hired, then total product is
increasing at a decreasing rate
If marginal cost is positive and rising as more output is produced, then total cost is
increasing at an increasing rate
a perfectly competitive firm is a price-taker because
intense competition prevents it from influencing the market price
The short-run supply curve for a perfectly competitive firm is its
marginal cost curve above the average variable cost curve
If labor is the only variable input and the wage rate is constant, marginal cost reaches its minimum when
marginal product reaches its maximum
According to the price-taking firm's optimal output rule, a perfectly competitive firm should produce the quantity at which marginal cost is equal to
marginal revenue and price
When a firm is producing where marginal cost is equal to marginal revenue, the firm
may be making profits or losses
If marginal cost is rising and lies above average variable cost, then average total cost
may be rising or falling
In studying market structures, economists have observed that when an industry has a relatively large number of firms, the firms are more likely to engage in _____ and prices are likely be relatively _____
non cooperative behavior, low
A difference between oligopolists and monopolistic competitors is that only
oligopolists can earn economic profit in the long run
because a perfectly competitive firm is a price-taker, its short run demand curve is
perfectly elastic
a perfectly competitive firm is guaranteed to be profitable when it produces a level of output where
price is greater than average total cost
Oscar sells bicycles in a perfectly competitive market. In the short run, at the quantity that equates marginal revenue and marginal cost, the market price is above Oscar's average variable cost and below his average total cost. Oscar should
produce at a loss because he is covering his variable costs
For a perfectly competitive increasing-cost industry, an increase in demand will cause the price to
rise and the cost of inputs to rise
Tia sells hats in a perfectly competitive market. If, in the long run, the market price exceeds the minimum of Tia's average variable cost but is below the minimum of her average total cost, Tia should
shut down her business at that time
If the average product of labor is rising as more workers are hired, then
the marginal product of labor must be higher than the average product of labor
If at the current level of output of 200 units, average variable cost is $10/unit and average total cost is $15/unit, then
total fixed cost is equal to $1,000
