Final review AP Micro
A decrease in the price of silicon chips and increased production of user-friendly software will affect the price and quantity of computers in which of the following ways? Price: Quantity
a. Increase: Increase b. Increase: Decrease c. Decrease: Decrease d. Decrease: May increase, decrease or remain the same. e. May increase, decrease, or remain the same: Increase Answer: e. May increase, decrease, or remain the same: Increase
When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of:
a. Interindustry competition b. Limit pricing c. Price leadership d. Collusion Answer: d. Collusion
One major barrier to entry under pure monopoly arises from:
a. The availability of close substitutes for a product b. Ownership of essential resources c. The price taking ability of the firm d. Diseconomies of scale Answer: b. Ownership of essential resources
Marginal resource cost is:
a. The increase in a firm's total cost caused by hiring one additional unit of an input b. A firm's cost of hiring one group of inputs, such as capital or labor c. The firm's demand curve for a productive resource d. Determined by the marginal physical product schedule for an input Answer: a. The increase in a firm's total cost caused by hiring one additional unit of an input
A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:
a. The firm should continue to produce this quantity b. The firm should increase output and decrease price c. The firm should decrease output and increase price d. It is unclear what the firm should do without knowing marginal revenue Answer: d. It is unclear what the firm should do without knowing marginal revenue
Which would be characteristic of monopolistic competition?
a. A potential for price fixing through collusion b. Relatively small market share for each firm c. Mutual interdependence among the few firms d. Product standardization Answer: b. Relatively small market share for each firm
In which way does a straight line production possibilities curve differ from a concave production possibilities curve?
a. A straight-line production possibilities curve has a decreasing opportunity cost. b. A straight-line production possibilities curve has a constant opportunity cost. c. A straight-line production possibilities curve has an increasing opportunity cost. d. A straight-line production possibilities curve does not show opportunity cost. e. There is no difference between the two production possibilities curves. Answer: b. A straight-line production possibilities curve has a constant opportunity cost.
Which is an example of a change in product demand that increases labor demand?
a. Access to computers increases the productivity of mail order businesses, thus increasing the demand for their workers b. Tourism increases in popularity, increasing the demand for workers at tourist resorts c. A decrease in the price of trucks decreases the cost of transporting goods, thus increasing the demand for truckers d. A change in work rules increases output per worker in the auto industry, thus increasing the demand for auto workers Answer: b. Tourism increases in popularity, increasing the demand for workers at tourist resorts
Total revenue for producing 8 units of output is $48. Total revenue for producing 9 units of output is $63. Given this information, the:
a. Average revenue for producing 9 units is $1 b. Average revenue for producing 9 units is $15 c. Marginal revenue for producing the ninth unit is $1 d. Marginal revenue for producing the ninth unit is $15 Answer: d. Marginal revenue for producing the ninth unit is $15
Refer to the above graph. At output level H, the area of economic profit is:
a. BAEF b. ACG c. 0AEH d. BCGF Answer: a. BAEF
Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and S1 is the supply curve with a tax. The external cost to society from the production of this product is measured by:
a. DE b. EF c. FG d. AB Answer: a. DE
The demand for a productive resource is said to be "derived" because the demand for the factor:
a. Depends on the demand for the product it is used to make b. Depends on the demand for a complementary factor c. Is derived from the state of the economy d. Is derived from government policy Answer: a. Depends on the demand for the product it is used to make
Which would be most characteristic of oligopoly?
a. Easy entry into the industry b. Many large producers c. Product standardization d. Mutual interdependence Answer: d. Mutual interdependence
The crucial problem of economics is
a. Establishing a fair tax system. b. Providing social goods and services. c. Developing a price mechanism that reflects the relative scarcities of products and resources. d. Allocating scarce productive resources to satisfy wants. e. Enacting a set of laws that protects resources from overuse. Answer: d. Allocating scarce productive resources to satisfy wants.
Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and S1 is the supply curve with a tax. This figure indicates that there is (are):
a. External benefits to the production of this product b. External costs from the production of this product c. An underallocation of resources to product production d. Positive externalities from product production Answer: b. External costs from the production of this product
Which characteristic would best be associated with pure competition?
a. Few sellers b. Price taker c. Nonprice competition d. Product differentiation Answer: b. Price taker
A profit-maximizing firm should hire an input as long as the:
a. Firm can increase its total revenue b. Price of the input doesn't exceed the price of the other inputs used in the firm's production c. Marginal revenue product of the input is at least as much as the cost of hiring the input d. Marginal revenue product of the input is greater than the marginal revenue product of other inputs the firm is using Answer: c. Marginal revenue product of the input is at least as much as the cost of hiring the input
Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and St is the supply curve with a tax. If government corrects this externality problem with a tax so that all the costs are included in the cost of production, then the product price will be set at point:
a. G b. F c. E d. D Answer: a. G
Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and S1 is the supply curve with a tax. One solution to this externality problem is to:
a. Give consumers a subsidy of the amount FG b. Give producers a subsidy of the amount AB c. Tax producers by the amount DE d. Tax consumers by the amount EF Answer: c. Tax producers by the amount DE
The basic economic problem is reflected in which of the following concepts?I. Opportunity cost.II. Production Possibilities.III. The fallacy of composition.IV. Ceteris paribus.
a. I only. b. IV only. c. I and II only. d. II and III only. e. II, III and IV only. Answer: c. I and II only.
A monopolist can sell 10 units at $12 per unit and 9 units at $13 per unit. The marginal revenue from the 10th unit is:
a. $1 b. $3 c. $12 d. $120 Answer: b. $3
Wayne's Jacket Shop sells Wayne's jackets for $20 each. Wayne finds that when he hires workers, this happens: Workers Total Revenue 1 $ 800 2 $1,400 3 $2,000 4 $1,600 5 $1,000 Refer to the above table. What is the average revenue product of four workers?
a. $20 b. $75 c. $300 d. $400 Answer: d. $400
Refer to the above graph. The level of output at which this firm will shut down is:
a. 0A b. 0B c. 0C d. 0K Answer: a. 0A
Refer to the above graph. The level of output at which this firm is maximizing an economic profit is:
a. 0A b. 0B c. 0C d. 0K Answer: c. 0C
Refer to the above graph. At output level H, the area:
a. 0CGH represents the firm's total cost of production b. ACGE represents the firm's economic profit c. 0AEH represents the firm's economic profit d. BCGF represents the firm's fixed costs of production Answer: d. BCGF represents the firm's fixed costs of production
Refer to the above graph. At output level H, the area:
a. 0CGH represents the firm's variable cost of production b. ACGE represents the firm's economic profit c. 0AEH represents the firm's economic profit d. 0CGH represents the firm's fixed costs of production Answer: a. 0CGH represents the firm's variable cost of production
Refer to the above graph. The profit-maximizing monopolist in it will set its price and output at:
a. 0J and 0V, respectively b. 0G and 0Y, respectively c. 0K and 0T, respectively d. 0H and 0X, respectively Answer: a. 0J and 0V, respectively
Refer to the above table. If the price of Wayne's jackets rose to $25, what would the marginal product of the third worker be?
a. 20 b.30 c. 50 d. -20 Answer: b. 30
Refer to the above graphs. A short-run equilibrium that would produce profits for a monopolistically competitive firm would be represented by graph:
a. A b. B c. C d. D Answer: a. A
Refer to the above graphs. The long-run equilibrium for a monopolistically competitive firm is represented by graph:
a. A b. B c. C d. D Answer: b. B
Refer to the above graphs. A short-run equilibrium that would produce losses for a monopolistically competitive firm would be represented by graph:
a. A b. B c. C d. D Answer: d. D
If the demand curve for product B shifts to the right as the price of product A declines, it can be concluded that
a. A is a superior and B is an inferior good b. A is an inferior and B is a superior good c. A and B are substitutes for each other d. A and B are complementary goods Answer: d. A and B are complementary goods
Which of the following is true of the concept of increasing opportunity cost?
a. It is unimportant in command economies because of central planning. b. It suggests that the use of resources to produce a set of goods and services means that as more of one is produced, some of the other must be sacrificed. c. It is irrelevant if the production possibilities curve is convex to the origin. d. It suggests that unlimited wants can be fulfilled. e. It means that resources are plentiful and opportunities to produce greater amounts of goods and services are unlimited. Answer: b. It suggests that the use of resources to produce a set of goods and services means that as more of one is produced, some of the other must be sacrificed.
Suppose two workers can harvest $46 and three workers can harvest $60 worth of apples per day. On the basis of this information we can say that the:
a. Marginal product of each of the first two workers is 23 b. Marginal revenue product of each of the first two workers is $23 c. Marginal revenue product of the third worker is $14 d. Third worker should not be hired Answer: c. Marginal revenue product of the third worker is $14
If the wage rate in a purely competitive labor market increases, it will cause the:
a. Marginal resource cost curve for a single competitive firm in the industry to shift rightward b. Marginal resource cost curve for a single competitive firm in the industry to shift leftward c. Labor supply curve for a single competitive firm to shift downward d. Labor supply curve for the industry to shift rightward Answer: b. Marginal resource cost curve for a single competitive firm in the industry to shift leftward
A firm should increase the quantity of output as long as its:
a. Marginal revenue is greater than its marginal cost b. Marginal cost is greater than its marginal revenue c. Average revenue is greater than its average total cost d. Average revenue is greater than its average variable cost Answer: a. Marginal revenue is greater than its marginal cost
Which is necessarily true for a purely competitive firm in short-run equilibrium?
a. Marginal revenue less marginal cost equals zero b. Price less average total cost equals zero c. Total revenue less total cost equals zero d. Marginal revenue is zero Answer: a. Marginal revenue less marginal cost equals zero
In an oligopoly undergoing game theory competition, each player tries to:
a. Maximize its own profits b. Minimize the market shares of its opponents c. Minimize the profits of its opponents d. Maximize its own market share Answer: a. Maximize its own profits
When the production of a product creates external costs greater than external benefits, a market economy will:
a. Not produce the product without government intervention b. Produce a socially optimal allocation of resources c. Allocate too few resources to production of the product d. Allocate too many resources to production of the product Answer: d. Allocate too many resources to production of the product
Refer to the above graph. The level of output at which this firm will produce is:
a. OA b. OB c. OC d. OK Answer: c. OC
A major distinction between a monopolistically competitive firm and an oligopolistic firm is that:
a. One is a price taker and the other is a price maker b. A recognized interdependence exists between firms in one industry but not in the other c. One always produces differentiated products and the other always produces a homogeneous product d. One necessarily faces a downward-sloping demand curve and the other a horizontal demand curve Answer: b. A recognized interdependence exists between firms in one industry but not in the other
Which is a barrier to entry?
a. Patents b. Revenue maximization c. Profit maximization d. Elastic product demand Answer: a. Patents
Once a government has provided a public good, everyone:
a. Pays the cost b. Can obtain the benefit c. Experiences a moral hazard d. Experiences adverse selection Answer: b. Can obtain the benefit
Given a downsloping linear demand curve, when total revenue is decreasing, marginal revenue is:
a. Positive and demand is elastic b. Negative and demand is elastic c. Positive and demand is inelastic d. Negative and demand is inelastic Answer: d. Negative and demand is inelastic
The economic incentive for price discrimination depends on:
a. Prejudices of business managers b. Differences among sellers' costs c. A desire to evade antitrust legislation d. Differences among buyers' demand elasticities Answer: d. Differences among buyers' demand elasticities
One difference between monopolistic competition and pure competition is that:
a. Products can be standardized or differentiated in pure competition b. There is some control over price in monopolistic competition c. Monopolistic competition has significant barriers to entry d. Firms differentiate their products in pure competition Answer: There is some control over price in monopolistic competition
Which market model is characterized by many firms, differentiated products, and relatively easy entry?
a. Pure competition b. Pure monopoly c. Monopolistic competition d. Oligopoly Answer: c. Monopolistic competition
Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to:
a. Shift to the left b. Shift to the right c. Become more elastic d. Remain the same since entering firms serve other customers in the market Answer: b. Shift to the right
Which idea is inconsistent with pure competition?
a. Short-run losses b. Product differentiation c. Freedom of entry or exit for firms d. A large number of buyers and sellers Answer: b. Product differentiation
If the supply of labor in a purely competitive labor market increases, the labor:
a. Supply curve for a single employer will shift up b. Supply curve for a single employer will shift down c. Demand curve for a single employer will shift to the right d. Demand curve for a single employer will shift to the left Answer: b. Supply curve for a single employer will shift down
If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be:
a. Taxed b. Prohibited c. Subsidized d. Left alone Answer: c. Subsidized
The pure monopolist who is nondiscriminating must decrease price on all units of a product sold in order to sell additional units. This explains why:
a. There are barriers to entry in pure monopoly b. A monopoly has a perfectly elastic demand curve c. Marginal revenue is less than average revenue d. Total revenues are greater than total costs at the profit maximizing level of output Answer: c. Marginal revenue is less than average revenue
Which is true under conditions of pure competition?
a. There are differentiated products b. The demand curve for a firm is perfectly elastic c. A single firm can influence the market price by changing its output d. Firms that cannot make pure or economic profits go bankrupt Answers: b. The demand curve for a firm is perfectly elastic
Marginal revenue product is the increase in:
a. Total revenue from a decrease in the price of the product b. Marginal revenue from a decrease in the price of the product c. Marginal revenue from the use of an additional unit of a resource d. Total revenue from the use of an additional unit of a resource Answer: d. Total revenue from the use of an additional unit of a resource
An income tax is progressive if the
a. absolute amount paid as taxes varies directly with income b. percentage of income paid as taxes is the same regardless of the size of income c. percentage of income paid as taxes increases as income increases d. tax rate varies inversely with income Answer: c. percentage of income paid as taxes increases as income increases
A leftward shift of the product supply curve might be caused by:
a. an improvement in the relevant technique of production b. a decline in the price of needed resources c. an increase in consumer incomes d. some firms leaving the industry Answer: d. some firms leaving the industry
Price floors and ceiling prices
a. both cause shortage b. both causes surpluses c. cause the demand and supply curves to shift until equilibrium is established d. interfere with the rationing function of prices e. do none of these Answer: d. interfere with the rationing function of prices
The price elasticity of demand coefficient indicates
a. buyer responsiveness to price changes b. the extent to which a demand curve shifts as income changes c. the slope of the demand curve d. how far business executives can stretch their fixed costs Answer: a. buyer responsiveness to price changes
The demand for a product is said to be inelastic with respect to price if:
a. consumers are largely unresponsive to a per unit price change b. the elasticity coefficient is greater than 1 c. a drop in price is accompanied by an a decrease in the quantity demanded d. a drop in price is accompanied by an increase in the quantity demanded Answer: a. consumers are largely unresponsive to a per unit price change
Which of the following will cause the demand curve for Product A to shift to the left?
a. population growth which causes an expansion in the number of persons b. an increase in money income if A is a normal good c. a decrease in the price of complementary good C d. an increase in money income if A is an inferior good e. an increase in the price of substitute product B Answer: d. an increase in money income if A is an inferior good
The benefits-received principle of taxation is most evident in
a. progressive tax rates b. the personal income tax c. inheritance taxes d. the excise tax on gasoline Answer: d. the excise tax on gasoline
If the supply and demand curve for a product both decrease we can say that equilibrium:
a. quantity must fall and equilibrium price must rise b. price must fall, but equilibrium quantity may either rise, fall or remain c. quantity must decline, but equilibrium price may either rise, fall or remain d. quantity and equilibrium price must both decline Answers: c. quantity must decline, but equilibrium price may either rise, fall or remain
Which of the following best reflects the ability-to-pay philosophy of taxation?
a. tax on residential property b. an excise tax on gasoline c. a progressive income tax d. an excise tax on coffee Answer: c. a progressive income tax