AP Econ Midterm 34 MCQ questions

6. Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run? (A) If the average total cost curve is rising, the marginal cost curve is above the average total cost curve. (B) If the average total cost curve is rising, the marginal cost curve is below the average total cost curve. (C) If the average total cost curve is above the marginal cost curve, the marginal cost curve is rising. (D) If the average total cost curve is below the marginal cost curve, the marginal cost curve is falling. (E) If the average and marginal cost curves intersect, the marginal cost curve is at a minimum.

(A) If the average total cost curve is rising, the marginal cost curve is above the average total cost curve.

19. Marginal cost is defined as the (A) change in total cost resulting from producing an additional unit of output (B) change in total cost resulting from using an additional unit of input (C) difference between total cost and total variable cost (D) difference between total variable cost and total fixed cost (E) difference between average total cost and average variable cost divided by output

(A) change in total cost resulting from producing an additional unit of output

2. To alleviate a financial crisis, a university increases student fees. This action will increase university revenues if the price elasticity of demand for university education is (A) inelastic (B) unit elastic (C) elastic (D) equal to the price elasticity of supply (E) equal to one

(A) inelastic

34. A firm's demand curve for labor is equal to its: (A) marginal revenue product curve (B) marginal resource cost curve (C) total revenue curve (D) marginal cost curve (E) average variable cost curve

(A) marginal revenue product curve

21. In the short run, a perfectly competitive firm should shut down whenever (A) minimum average variable cost exceeds price (B) minimum average total cost exceeds price (C) marginal revenue exceeds marginal cost (D) marginal cost exceeds marginal revenue (E) it is losing money

(A) minimum average variable cost exceeds price

4. Which of the following will decrease the demand for beef? (A) An increase in the price of pork, if pork and beef are substitute goods (B) An increase in the price of potatoes, if potatoes and beef are complementary goods (C) A decrease in the cost of transporting beef to consumers (D) An increase in the income levels of most consumers, if beef is a normal good (E) Research showing beef is better for your health than chicken

(B) An increase in the price of potatoes, if potatoes and beef are complementary goods

32. To correct for a positive externality, the government should: (A) Ignore it. (B) Subsidize equal to the marginal external benefit. (C) Tax equal to the marginal external cost. (D) Always produce the good themselves. (E) Make the good a common resource.

(B) Subsidize equal to the marginal external benefit.

10. The study of economics is primarily concerned with which of the following? (A) The testing of hypotheses under controlled conditions (B) The allocation of scarce resources, given unlimited wants (C) The fair and equal treatment of all households (D) The provision of conclusive answers to public policy issues (E) The development of the dynamics of group behavior

(B) The allocation of scarce resources, given unlimited wants

16. Which of the following would cause the equilibrium price of good X to increase? (A) Producers of good X find a new technology that reduces the cost of producing X. (B) The price of an essential input in the production of good X increases. (C) Goods X andY are complements, and the government imposes a tax on good Y. (D) Good X is a normal good, and the government increases income taxes by 3%. (E) Good X is an inferior good, and the government decreases income taxes by 10%.

(B) The price of an essential input in the production of good X increases.

24. If the demand for good Y increases as the price of good X decreases, it can be concluded that (A) X and Y are substitute goods (B) X and Y are complementary goods (C) X is an inferior good and Y is a superior good (D) X is a superior good and Y is an inferior good (E) both X and Y are inferior goods

(B) X and Y are complementary goods

18. Technological advances will lead to (A) an increase in marginal utility (B) a decrease in average total costs (C) a decrease in net exports (D) an increase in marginal costs (E) diseconomies of scale

(B) a decrease in average total costs

7. One characteristic of perfectly competitive markets is that individual firms (A) engage in product differentiation (B) are free to enter or exit an industry in the long run (C) earn positive economic profits in the long run (D) advertise to increase market share (E) face a downward-sloping demand curv

(B) are free to enter or exit an industry in the long run

28. A single-price monopolist's marginal revenue is (A) equal to its price (B) less than its price (C) greater than its price (D) negative when it maximizes revenues (E) zero when it maximizes profit

(B) less than its price

20. If each firm simultaneously chooses its pricing strategy without collusion, Firm A's and Firm B's profits would be which of the following? Firm A's Profit Firm B' s Profit (A) $150 $100 (B) $100 $100 (C) $100 $150 (D) $50 $100 (E)$50$60

(C) $100 $150

33. Which of the following is true if the production of a good results in spillover costs? (A) The marginal private benefit curve is above the marginal social cost curve. (B) The government should implement a per-unit subsidy. (C) A competitive market would produce more than the socially optimal quantity. (D) A competitive market would not provide the good at all. (E) A surplus of the good will always occur.

(C) A competitive market would produce more than the socially optimal quantity.

30. Which of the following is true if a monopolist's marginal revenue is negative at the current level of output? {A) Demand for its product is unit elastic. (B) Demand for its product is price elastic. (C) Demand for its product is price inelastic. (D) Marginal cost is equal to price. (E) Marginal revenue is equal to price.

(C) Demand for its product is price inelastic.

3. Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good? (A) The quantity sold will exceed the equilibrium quantity. (B) Firms' total revenues will increase if demand is price elastic. (C) There will be a shortage in the market. (D) All firms will shut down, since price is below the equilibrium price. (E) Price will exceed the marginal cost of producing the last unit sold.

(C) There will be a shortage in the market.

29. When marginal product is negative, which of the following must be true? (A) Average product is increasing. (B) Marginal product is increasing. (C) Total product is decreasing. (D) Total product is at its maximum. (E) None of the above.

(C) Total product is decreasing.

5. In a given time period, a person consumes more and more of a good or service and, as a result, enjoys each additional unit less and is willing to pay less for each additional unit. This behavior is consistent with the law of (A) diminishing returns (B) diminishing marginal product (C) diminishing marginal utility (D) increasing costs (E) scarce resources

(C) diminishing marginal utility

13. A monopoly is different from a perfectly competitive firm in that a monopoly (A) does not have a U-shaped average total cost curve (B) has an average fixed cost curve that is perfectly horizontal (C) has a marginal revenue curve that lies below its demand curve (D) always earns economic profits (E) operates in the inelastic segment of its demand curve

(C) has a marginal revenue curve that lies below its demand curve

22. A difference between oligopolists and monopolistic competition is that only (A) oligopolists engage in product differentiation. (B) monopolistic competitors collude. (C) oligopolists are one of a few firms in a particular industry. (D) monopolistic competitors can incur losses. (E) monopolistic competitors can form a cartel.

(C) oligopolists are one of a few firms in a particular industry.

26. Which of the following best explains why the short-run average total cost curve is U-shaped? (A) Spreading total fixed costs over a larger output, and constant returns (B) Spreading total fixed costs over a larger output, and eventually diminishing returns (C) Increasing total fixed costs and increasing returns (D) Increasing average variable costs and decreasing returns (E) Decreasing average variable costs and increasing returns

(D) Increasing average variable costs and decreasing returns

8. Which of the following is true of a monopolistically competitive firm in long-run equilibrium? (A) Price is greater than marginal cost, and marginal revenue is equal to average total cost. (B) Price is greater than marginal revenue, and marginal cost is equal to average total cost. (C) Price is greater than marginal revenue, and marginal cost is greater than average total cost. (D) Marginal revenue is equal to marginal cost, and price is equal to average total cost. (E) Marginal revenue is greater than marginal cost, and price is equal to average total cost.

(D) Marginal revenue is equal to marginal cost, and price is equal to average total cost.

27. Assume that a firm is maximizing short-run profits and that price is greater than average variable cost. Which of the following must be true at the firm's level of output? (A) Marginal revenue is equal to average total cost. (B) Marginal revenue is greater than total variable cost. (C) Marginal revenue is equal to price, which is greater than average total cost. (D) Marginal revenue is equal to marginal cost. (E) Price is equal to average total cost.

(D) Marginal revenue is equal to marginal cost.

31. Suppose the government decides to implement an occupational license for computer programmers. What will happen? (A) The wage rate will increase and quantity of labor will increase. (B) The wage rate will decrease and the quantity of labor will increase. (C) The wage rate will stay the same and the quantity of labor will decrease. (D) The wage rate will increase and the quantity of labor will decrease. (E) The wage will stay the same and the quantity of labor will stay the same.

(D) The wage rate will increase and the quantity of labor will decrease.

15. Consumer surplus is defined as (A) opportunity cost minus total revenue (B) total revenue minus opportunity cost (C) the difference between the resource costs and the price that consumers pay (D) the difference between the value that consumers place on a good and the price they pay (E) the sum of external costs and benefits

(D) the difference between the value that consumers place on a good and the price they pay

23. An opportunity cost is entailed in which of the following situations? I. A student decides to attend college full-time. II. A family uses its $20,000 savings to purchase an automobile. III. A farmer decides to grow more wheat and less corn. (A) I only (B) II only (C) III only (D) I and III only (E) I, II, and III

(E) I, II, and III

25. If a perfectly competitive firm increases its price above the market equilibrium price, which of the following will be true for this firm? (A) Its total revenue will increase. (B) Its profit will increase. (C) Its sales will decrease but profit will not be affected. (D) Its demand curve will become downward sloping. (E) It will not be able to sell any output.

(E) It will not be able to sell any output.

14. Price discrimination occurs when (A) the supply of the product is elastic (B) a product's average cost is greater than its average revenue (C) a product's average cost is less than its average revenue (D) differences in a product's price reflect differences in marginal costs (E) differences in a product's price do not reflect differences in costs of production

(E) differences in a product's price do not reflect differences in costs of production

11. If the price of good Z increases by 5% and consumers prefer 10% less of that good, the demand for good Z is: (A) a complementary good because the coefficient is 2. (B) elastic because the coefficient is 0.5. (C) inelastic because the coefficient is 0.5. (D) inferior because the coefficient is 2. (E) elastic because the coefficient is 2.

(E) elastic because the coefficient is 2.

12. If there are many firms in an industry and each firm's product is indistinguishable from the products of all other firms, the individual firm's demand curve will be (A) upward sloping and different for each firm (B) downward sloping and different for each firm (C) downward sloping and identical for every firm (D) horizontal and different for each firm (E) horizontal and identical for every firm

(E) horizontal and identical for every firm

9. Generally, monopolies are considered inefficient because they (A) produce at a point where marginal cost is less than marginal revenue (B) produce at a point where marginal cost exceeds price (C) produce more output than does a competitive industry with similar cost conditions (D) lead to an overallocation of resources in the affected market (E) lead to an underallocation of resources in the affected market

(E) lead to an underallocation of resources in the affected market

17. The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight's departure date rather than on the day of departure. This pricing strategy is based on the assumption that (A) travelers are not aware of how airline prices change across time (B) travelers do not have alternative modes of transportation (C) travelers will pay any price to travel as the departure date approaches (D) the marginal cost of the last few seats on an airplane is higher than that for the first few seats (E) travelers' demand becomes less elastic as the departure date approaches

(E) travelers' demand becomes less elastic as the departure date approaches

The numbers show the number of paintings and sculptures that Michael and David can make. Which of the following statements is true? (A) Michael has a comparative advantage in sculptures and David has a comparative advantage in paintings. (B) David has a comparative advantage in sculptures and paintings. (C) Michael has a comparative advantage in paintings and David has a comparative advantage in sculptures. (D) David has an absolute advantage in in paintings, but not in sculptures. (E) Michael has an absolute advantage in paintings and sculptures.

A) Michael has a comparative advantage in sculptures and David has a comparative advantage in paintings.