AP Micro: MC from Last Year's Midterm

Assume that Good X is a normal good. Which of the following helps to explain why a decrease in the price of Good X increases the quantity demanded of Good X? A. Good X becomes relatively less expensive than its substitutes, some consumers buy more of good X and fewer of its substitutes (the substitution effect) B. The marginal utility of Good X increases as more of Good X is consumed C. The lower price of Good X decreases marginal utility per dollar. Therefore, consumers buy more of Good X D. The demand curve for good X shifts to the left E. The supply curve for good X shifts to the left

A. Good X becomes relatively less expensive than its substitutes, some consumers buy more of good X and fewer of its substitutes (the substitution effect)

Suppose that people who work in the paint industry face a great risk of developing an incurable disease. A medical breakthrough that eliminates the risk will most likely cause which of the following shifts in the supply and demand curves for workers in the paint industry? Supply Curve Demand Curve A. shift right no shift B. shift left no shift C. shift left shift left D. shift left shift right E. no shift shift left

A. supply shift right, demand no shift

If the production of a good generates a negative externality, which of the following is true at the private market equilibrium? A. the private market equilibrium quantity is greater than the socially optimal quantity B. The private market equilibrium quantity is equal to the socially optimal quantity C. the marginal private cost is greater than the marginal social cost D. the marginal social benefit is greater than the marginal social cost E. the price of the product equals the marginal social cost

A. the private market equilibrium quantity is greater than the socially optimal quantity

Which of the following is key assumption of consumer choice theory? A. consumers buy goods as long as implicit costs are greater than explicit costs B. Consumers maximize their utility C. as income rises, consumers buy more of all goods D. marginal utility is always increasing E. as more inputs are used, consumers get less and less additional output

B. Consumers maximize their utility

Which of the following is true of an economy's production possibilities frontier? A. It shows the combinations of any two resources that can be used to produce an efficient level of output B. It shows the alternative combinations of goods that can be produced by fully employing scarce resources C. It must be a straight line when all resources are fully employed D. It is bowed in (convex to the origin) because of changing levels of technology E. It is bowed out (concave to the origin) when marginal opportunity costs are constant

B. It shows the alternative combinations of goods that can be produced by fully employing scarce resources

Which of the following is most likely to make a country's income distribution more equal? A. establishing a national sales tax on food and clothing B. establishing a progressive income tax system C. eliminating excise taxes on luxury goods D. proportionally decreasing the tax rate for all income groups E. reducing the subsidy to education

B. establishing a progressive income tax system

If the demand for insulin is price inelastic, a 5 percent increase in the price of insulin will A. have no effect on the total revenue of insulin producers B. increase the total revenue of insulin producers C. decrease the total revenue of insulin producers D. decrease the total spending on insulin by consumers E. cause the demand for insulin to be less elastic

B. increase the total revenue of insulin producers

If an unusually cold summer destroyed a large portion of the bee population, the equilibrium price and quantity of honey produced by bees will most likely change in which of the following ways? Price Quantity A. Increase Increase B. Increase Decrease C. Increase No Change D. Decrease Decrease E. No Change Decrease

B. increase, decrease

Which of the following is true of the cross-price elasticity of demand? A. it can indicate if a good is a necessity of a luxury B. it is greater than zero for two goods that are substitutes C. it is close to zero if the two goods are closely related D. it is always negative because demand curves are downward sloping E. it increases as income increases

B. it is greater than zero for two goods that are substitutes

When consumption of a good generates a positive externality, which of the following must be true at the market equilibrium? A. marginal social benefit is less than marginal private cost B. marginal social benefit os greater than marginal private benefit C. marginal social cost is greater than marginal social benefit D. marginal social cost is less than marginal private benefit E. marginal social cost is equal to marginal external benefit

B. marginal social benefit os greater than marginal private benefit

The amount of product Z that must be forgone in order to obtain some amount of product Y is called A. factor payment B. opportunity cost C. marginal product D. income effect E. substitution effect

B. opportunity cost

Assuming that all residents of the city of Smallville prefer to have streetlights installed citywide, which of the following best explains why individual residents do not install the optimal number of streetlights? A. streetlights generate negative externalities B. streetlights are non-excludable C. installing streetlights results in diseconomies of scale D. the marginal cost of installing streetlights is zero E. the marginal benefit of installing streetlights is zero

B. streetlights are non-excludable

Which of the following could shift the short run supply curve for strawberries? A. A decrease in the consumption of strawberries B. An increase in the price of strawberries C. A strike by all farmworkers D. An increase in household incomes E. An announcement of a study that shows the health benefits of eating strawberries

C. A strike by all farmworkers

Last year, 17 million tons of beans were sold for $300 per ton. This year, 17 million tons of beans were sold for $285 a ton. Which of the following changes in demand and supply could have caused this outcome? (Hint: draw a graph or two) Demand Supply A. Increase Increase B. Increase Decrease C. Decrease Increase D. Decrease Decrease E. Increase No change

C. Decrease, Increase

The table below shows the number of hours it take Kim to install a computer or to paint a garage and for Maria to install a computer or to paint a garage: Kim Maria install computer 2 hours 4 hours paint garage 10 hours 12 hours if tasks are assigned according to comparative advantage, which of the following is true? A. Kim should perform both tasks B. Maria should perform both tasks C. Kim should install computers and Maria should paint garages D. Kim should paint garages and Maria should install computers E. Kim and Maria should both install computers

C. Kim should install computers and Maria should paint garages

If shirts and ties are complements and if the price of shirts increases due to an increase in the price of cotton, which of the following is most likely to occur in the market for ties in the short run? A. The equilibrium price and quantity of ties will increase B. The equilibrium price and quantity of ties will decrease C. The equilibrium price of ties will increase and the equilibrium quantity will decrease D. The supply of ties will increase E. The demand for ties will increase

C. The equilibrium price of ties will increase and the equilibrium quantity will decrease

Which of the following will most likely happen in the market for good X if the price of good X decrease? A. The supply of good X will decrease B. The demand for good X will increase C. The quantity demanded for good X will increase D. The demand will decrease and the supply will increase E. the quantity supplied for good X will increase

C. The quantity demanded for good X will increase

If the order of labeled points on a demand curve going down to the right is Z, Y, X. At which given points is demand most elastic? A. X B. Y C. Z D. the elasticity is the same for all points E. the relative elasticity cannot be determined with the given information

C. Z

Oscar spent his entire income on only two goods: good X and good Y. At his current consumption of the two goods, the marginal utility of X is 8 and the marginal utility of Y is 2. If the price of X is $4.00 and the price of Y is $0.50, then to maximize his total utility, Oscar should have A. bought more X and more Y B. bought more X and less Y C. bought less X and more Y D. bought less X and less Y E. maintained his current consumption

C. bought less X and more Y

Assume that the government imposes an effective minimum wage in a perfectly competitive labor market. What will happen to employment and total wage payments? employment total wage payments A.decrease increase B.decrease decrease C.decrease indeterminate D.increase increase E.increase indeterminate

C. decrease, indeterminate

National defense is an example of a public good because A. it requires tax revenue to find any production B. one person's use of it will decrease another person's ability to use it C. it is non-excludable and non-rival D. the private market typically produces the socially efficient level of output E. the public is protected from invasion

C. it is non-excludable and non-rival

Consumer surplus exists because of the A. surplus of money that wealthy consumers hold B. surplus in marginal product that firms get when they hire an additional worker C. willingness of some consumers to pay a price higher than the market price for some units of a good D. additional utility that households obtain when the prices of substitutes fall E. increase in the availability of goods when income rises

C. willingness of some consumers to pay a price higher than the market price for some units of a good

The table above shows the supply and demand schedules for gasoline at various prices. If the government establishes a price flow at $2.75, what will the price of gasoline be? price per gallon quantity Supplied quantity demanded $2.50 11,000 17,000 $2.75 12,000 16,000 $3.00 13,000 15,000 $3.25 14,000 14,000 $3.50 15,000 13,000 $3.75 16,000 12,000 A. $2.75 B. $3 C. $3 D. $3.25 E. $3.50

D. $3.25

Let MUs be the marginal utility of a sandwich, MUh be the marginal utility of a hot dog, Ps be the price of a sandwich, and Ph be the price of a hot dog. When the price of the goods is zero, Pat eats a sandwich. When Pat has to pay, she eats a hot dog. When Pat has to pay, which of the following is necessarily true? A. MUs = MUh = Ps = Ph B. (MUs/Ps) > (MUh/Ph) C. Ps < Ph D. Ps > Ph E. MUs = 0

D. Ps > Ph

Antitrust policy is designed to A. encourage businesses to produce public goods B. establish trust between the government and the business community C. prevent businesses from earning profits D. maintain a competitive business environment E. ensure that businesses earn only zero economic profits in the long run

D. maintain a competitive business environment

Which of the following is necessary in a well-functioning economy but not in a command economy? A. centralized decision making B. scarcity of resources C. monopolies D. protection of property rights E. positive externalities

D. protection of property rights