AP Microeconomic Unit 4 Practice Test

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to ________ and demand is described as ________.less than the price elasticity of demand for segment AB. -0.2; inelastic -5; inelastic -0.2; elastic -5; elastic -1; unit elastic

0.2; inelastic

(Figure 50-2: Tax Incidence) Based on the figure, consumers are likely to bear more of the burden of an excise tax in the situation(s) illustrated by Panels: -A and B. -A and D. -B and D. -B and C. -C only.

A and D.

(Figure 50-2: Tax Incidence) All other things unchanged, when a good or service is characterized by a relatively elastic supply, as shown in Panel ________, the greater share of the burden of an excise tax imposed on it is borne by ________. -A; buyers -B; sellers -B; buyers -A; sellers -D; sellers

A; buyers

Suppose the cross-price elasticity between demand for Burger King burgers and the price of McDonald's burgers is 0.8. If McDonald's increases the price of its burgers by 10%, then: -Burger King will sell 10% more burgers. -Burger King will sell 8% more burgers. -Burger King will sell 8% fewer burgers. -McDonald's will sell 8% fewer burgers. -Burger King will sell 80% more burgers.

Burger King will sell 8% more burgers.

(Figure 50-2: Tax Incidence) All other things unchanged, when a good or service is characterized by a relatively elastic demand, as shown in Panel ________, the greater share of the burden of an excise tax imposed on it is borne by ________. -D; buyers -D; sellers -C; sellers -C; buyers -A; buyers

C; sellers

Which of the following would be most likely to have a vertical supply curve? -salt -oil -insulin -paintings by Van Gogh -gasoline.

Paintings by Van Gogh

Which of the following is likely to make supply more inelastic? -The time period under consideration is quite long. -The inputs necessary for production cannot readily be increased. -The good is necessary for survival (e.g., a life-saving drug). -Consumer income is rising. -Production technology is easily adjusted to changes in price.

The inputs necessary for production cannot readily be increased.

If demand is perfectly inelastic and the supply curve is upward-sloping, then the burden of an excise tax is: -borne entirely by consumers. -borne entirely by producers. -shared by consumers and producers, with the burden falling mainly on consumers. -shared by consumers and producers, with the burden falling mainly on producers. -shared by consumers and producers, with the burden split equally.

borne entirely by consumers.

If the demand curve is downward-sloping and supply is perfectly elastic, then the burden of an excise tax is: -borne entirely by consumers. -borne entirely by producers. -shared by consumers and producers, with the burden falling mainly on consumers. -shared by consumers and producers, with the burden falling mainly on producers. -shared by consumers and producers, with the burden split equally.

borne entirely by consumers.

Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. Then we know that the: -cross-price elasticity between cereal and milk is -2. -cross-price elasticity between cereal and milk is -0.5. -price elasticity of demand for milk is 2. -cross-price elasticity of demand for milk is 2. -price elasticity of demand for cereal is 0.5.

cross-price elasticity between cereal and milk is -2.

As the price decreases along a linear demand curve, the price elasticity of demand will: -.increase. -decrease. -first increase and then decrease. -first decrease and then increase. -remain unchanged.

decrease

On a linear demand curve: -demand is unitary elastic at low prices. -demand is inelastic at high prices -elasticity is the same at all points on the demand curve. -demand is elastic at low prices. -demand is elastic at high prices

demand is elastic at high prices

Using the midpoint method of elasticity to calculate the price elasticity of demand eliminates the problem of computing: -different elasticities, depending on whether price decreases or increases. -different elasticities because price and quantity are inversely related to the demand curve. -total revenue when the price falls and demand is inelastic. -total revenue when the price falls and demand is elastic. -different elasticities, depending on whether the demand curve is vertical or horizontal.

different elasticities, depending on whether price decreases or increases.

The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that: -natural gas and electricity are both normal goods. -electricity and natural gas are complements. -electricity and natural gas are both luxury goods. -one of the two goods is inferior while the other is normal, but we need additional information to determine which of them is inferior. -electricity and natural gas are substitutes.

electricity and natural gas are substitutes.

The demand for strawberry ice cream tends to be relatively price-elastic because: -for most people, there are many close substitutes for strawberry ice cream. -it costs so little. -it has to be consumed very quickly. -for most people, there are no close substitutes for strawberry ice cream. -for most people, it is considered a necessity good

for most people, there are many close substitutes for strawberry ice cream.

After you graduate from college, you open a business selling computers. There are many other businesses in your city that sell similar computers. Based on this information, the price elasticity of demand for the computers that your business sells will be: -unitary elastic. -equal to zero. -highly elastic. -highly inelastic. -perfectly inelastic.

highly elastic

A perfectly elastic supply curve is: -horizontal. -downward-sloping. -upward-sloping. -vertical. -initially upward sloping at low prices, but downward-sloping at high prices.

horiztonal

The pair of items that is most likely to have a negative cross-price elasticity of demand is: -aspirin and hamburgers. -hot dogs and mustard. -margarine and butter. -ketchup and coffee. -coffee and tea.

hot dogs and mustard.

An important determinant of the price elasticity of demand is the: -importance of the good in household budgets. -level of technology. -quantity of the good supplied. -extent of government regulation. -unemployment rate in the economy.

importance of the good in household budgets.

Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will ________ due to the ________ effect being greater than the ________ effect. -decrease; quantity; priceincrease; price; quantity Correctnot change; quantity; priceincrease; quantity; pricedecrease; price; quantity

increase price; quantity

The price elasticity of demand along a demand curve with a constant slope: -is equal to the slope. -is greater than the slope. -is less than the slope. -increases in absolute value as the price rises. -is equal to zero at the price where the demand curve intersects the vertical axis

increases in absolute value as the price rises.

If income decreases and the consumption of a certain good increases, that good is considered a(n): -substitute good. -complementary good. -normal good. -inferior good. -luxury good.

inferior good

Suppose the price elasticity of demand for fishing lures equals 1 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should: -lower prices in each state.raise prices in each state.lower prices in South Carolina and raise prices in Alabama.leave prices unchanged in South Carolina and raise prices in Alabama. Correctraise prices in South Carolina and leave prices unchanged in Alabama.

leave prices unchanged in South Carolina and raise prices in Alabama.

(Figure 47-1: Demand for Shirts) The absolute value of the price elasticity of demand for the segment BC is: -less than the price elasticity of demand for segment AB. -is zero. -greater than 3. -less than the price elasticity of demand for segment CD. -equal to the price elasticity of demand for segment CD.

less than the price elasticity of demand for segment AB.

If your income increases and your consumption of bagels increases, other things equal, bagels are considered a(n): -negative good. -positive good. -inferior good. -normal good. -complementary good.

normal good.

If the quantity supplied responds substantially to a relatively small change in price, supply would be: -price-elastic. -price-inelastic. -negatively sloped. -insensitive to changes in price. -perfectly inelastic

price-elastic

If total revenue goes up when price falls, the price elasticity of demand is said to be: -price-inelastic. -price unit-elastic. -price-elastic. -perfectly price-inelastic. -equal to zero.

price-elastic

Along the lower half of a downward sloping linear demand curve, the price elasticity of demand will be: -.price-inelastic. -price-elastic. -price unit-elastic. -perfectly price-elastic. -perfectly price-inelastic.

price-inelastic

The incidence of a tax: -is a measure of the revenue the government receives from the tax. -refers to who writes the check to the government. -refers to the share of the tax paid by consumers and the share paid by sellers. -is a measure of the deadweight loss from the tax. -is the price elasticity of demand after the tax is paid.

refers to the share of the tax paid by consumers and the share paid by sellers.

When price goes down, the quantity demanded goes up. Price elasticity measures how: -much the price goes down. -much the quantity goes up. -responsive the price change is in relation to the quantity change. -responsive the quantity change is in relation to the price change.

responsive the consumer income change is in relation to the price change.

An excise tax collected from the producers of a good: -shifts the supply curve upward. -creates a loss of revenue for the government. -has a similar effect as a tax subsidy. -shifts the supply curve downward. -decreases the price of the good.

shifts the supply curve upward.

If the absolute value of the price elasticity of demand is greater than 1, this means: -small percentage changes in price will lead to much larger changes in the percentage change in quantity demanded. -small percentage changes in price will lead to even smaller changes in the percentage change in quantity demanded. -any percentage changes in price will lead to equal percentage changes in quantity demanded. -any percentage changes in price will have no impact on changes in quantity demanded. -any percentage changes in price will have an infinitely large impact on changes in quantity demanded.

small percentage changes in price will lead to much larger changes in the percentage change in quantity demanded.

When a consumer consumes more of a good that has become cheaper in place of a good that has become relatively more expensive, this is known as the: -substitution effect. -income effect. -budget constraint. -inferior effect. -normal effect.

substitution effect

If an increase in the price of a good leads to an increase in total revenue, then: -the supply curve must be price inelastic. -the demand curve must be price inelastic. -the supply curve is price elastic. -the demand curve must be price elastic. -the demand curve must be nearly horizontal.

the demand curve must be price inelastic.

If an excise tax is imposed on automobiles and collected from consumers, -the demand curve will shift downward by the amount of the tax. -the supply curve will shift upward by the amount of the tax. -the equilibrium quantity supplied will increase relative to the pre-tax level. -the equilibrium quantity demanded will increase relative to the pre-tax level -.the after-tax price paid by consumers will decrease.

the demand curve will shift downward by the amount of the tax.

If the government wants to minimize the deadweight loss from taxes, it should impose taxes on goods for which: -the price elasticity of demand is high. -the price elasticity of demand is low. -the price elasticity of supply is high. -the demand is high. -the equilibrium price is high.

the price elasticity of demand is low.

The price elasticity of demand for a good such as water is likely to be very low because: -the price is very low. Correctwater has some good substitutes.water is considered a luxury.the share of income spent on water is large.water is a necessity.

the price is very low.

A perfectly price-inelastic demand curve is: -horizontal. -downward-sloping. -upward-sloping. -vertical. -more elastic at the top of the demand curve, and less elastic at the bottom of the curve.

vertical