AP Econ Unit 2 Exam

Consumer surplus is the (A) Difference between the price consumers would have been willing to pay and the price they actually did pay. (B) Price consumers would have been willing to pay minus total variables costs. (C) Price consumers would have been willing to pay in addition to total variable costs. (D) Price consumers would have been willing to pay in addition to total fixed costs. (E) Price consumers would have been willing to pay minus total fixed and variable costs.

A

Deadweight loss refers to (A) The lost benefit to society caused by the movement away from the market equilibrium quantity. (B) The gained benefit to suppliers caused by the increase in the market equilibrium quantity. (C) The incremental benefit or loss when the consumer increases consumption by one additional unit ( marginal utility). (D) The legal maximum price above which a product cannot be sold (price ceiling). (E) The legal minimum price below which a product cannot be sold (price floor).

A

How do economists know that a good is a visible substitute? (A) Calculate cross-elasticity and the result is a positive number. (B) Calculate cross-elasticity and the result is a negative number. (C) The product is price inelastic. (D) Wait to see if the market forces of supply and demand balance to equilibrium for the potential substitute. (E0 None of the above.

A

If a nation's income increases by 5 percent and quantity demanded for sports cars rises by 15 percent, income elasticity of demand for sports cars is (A) 3 (B) -3 (C) 0.33 (D) -0.33 (E) 0.5

A

If consumers demand more soda, but health care costs increases as well, this indicates a (A) Negative externality. (B) Price ceiling. (C) Price support (D) Price floor (E) Decreases in production costs.

A

If tacos are a better substitute for burritos than hamburgers, tacos will have (A) A higher cross-price elasticity of demand. (B) A lower cross-price elasticity of demand. (C) The same cross-price elasticity of demand. (D) A negative cross-price elasticity of demand. (E) A zero cross-price elasticity of demand.

A

If the price of a good increases, the most likely result would be for the (A) Quantity supplied tp increase. (B) Quantity supplied to decrease. (C) Demand to increase. (D) Supply to decrease. (E) Demand to decrease.

A

If the supply curve is a line with an upward slope, an increase in demand will cause. (A) An increase in prices and a larger quantity sold. (B) An increase in prices and a smaller quantity sold. (C) A decrease in prices and a larger quantity sold. (D) A decrease in prices and a smaller quantity sold. (E) None of the above.

A

If the tomato price increases by 20 percent, and as a result quantity demanded for lettuce increases by 40 percent, the cross-price elasticity of demand for tomatoes and lettuce is. (A) 2 (B) 0.5 (C) -2 (D) 0.5 (E) 0

A

Income for New York consumers rises 20 percent. Quantity demanded for heating oil doesn't change. Heating oil is a (A) Sticky good (B) Inferior good (C) Luxury good (D) Normal good (E) Necessity good

A

Measuring allocative efficiency through allocation of resources is best expressed in which formula (A) P = MC. (B) P = AR. (C) MB > MC. (D) MB = MC. (E) P = ATC.

A

Producers surplus is equal to (A) The area to the left of the demand curve and below the price equilibrium. (B) The area to the right of the demand curve and below the price equilibrium. (C) The area to the left of the demand curve and above the price equilibrium. (D) The area to the right of the demand curve and above the price equilibrium. (E) The area to the right of the supply curve and to the left of the demand curve.

A

Suppose the market is in equilibrium for a razor blades where the marginal benefits equal the marginal costs. If the government imposes a tax on razor blades, what may result? (A) Deadweight loss. (B) An increase in demand. (C) An increase in supply. (D) A price ceiling. (E) A price floor.

A

Suppose the price of iPhones increases 2 percent and the quantity demanded for iPhones decreases by 4 percent, then (A) Elasticity is 2 and the demand is price elastic. (B) Elasticity is 0.5 and the demand is price inelastic. (C) Elasticity is 8 and demand is price elastic. (D) Elasticity is .05 and demand is price inelastic. (E) Answer cannot be determined without knowledge of the length of time the product is on the market with the increase in price.

A

The federal government increases mass transit subsides, and as a result, the price of a train ticket from New York to Boston decreases by 40 percent. Ridership increase from 10 million to 12 million as a result. Demand for a train ticket is (A) Inelastic. (B) Perfectly inelastic. (C) Elastic. (D) Perfectly elastic. (E) Neither elastic nor inelastic.

A

The price of peaches increases 30 percent . As a result, quantity demanded for plums increases from 50 to 80. What is the price elasticity demand for peaches and plums? (A) 2 (B) -2 (C) 0.5 (D) -0.5 (E) 1

A

Tyson Generators operate in a market where there are many similar products that are not fully identical. The buyers are completely rational and aware if all of the relevant information. Companies can easily enter or leave the market, and there are no barriers to entry. Why is this NOT an example of perfect competition. (A) Because the products are identical in a perfectly competitive market rather than being similar. (B) Because buyers are not fully rational in a perfectly competitive market, it is assumed they are price takers. (C) Because buyers are not aware of the relevant information in a perfectly competitive market, only producers are. (D) Because companies are not supposed to ever exit the market in a perfectly competitive market. (E) Because a perfectly competitive market has significant barriers to entry.

A

What will most likely result if the price of apples decreases? (A) The quantity of apples demanded will increase. (B) The supply of apples will decrease. (C) The demand for apples will increase. (D) The quantity of apples supplied will decrease. (E) None of the above.

A

Which factors contributes to price elasticity of supply? (A) Time. (B) Consumer surplus. (C) Consumer expectations regarding future prices. (D) Producers tastes and preferences. (E) The availability of a producers surplus.

A

Which is an important factor to make the demand for a good inelastic? (A) It is a necessity. (B) There are many substitutes. (C) It is a luxury item. (D) There are many cross-price substitutes. (E) A significant portion of consumers' budget goes to purchasing the good.

A

Which of the following situations will cause the demand curve for chicken, a normal good, to shift to the left. (A) Consumer incomes decrease. (B) C0nsumer incomes increase. (C) The price of steak decreases. (D) There is a decrease in the cost of raising chickens on a farm. (E) There is scientific discovery that relates easting chicken to lower blood pressure.

A

A fashion retailor can easily order new inventory and can employ inexperienced workers in its stores. A motorcycle manufacturer must wait several months for past shipments and workers need training to work at the motorcycle plant. Price elasticity of supply for the fashion retailor and the motorcycle manufacturer , respectively, are likely to be (A) High, high (B) High, low (C) Low, high (D) Low, low (E) Not enough information provided.

B

A handbag designer sells luxury handbags for $2,000. The designer raises the handbag price to $4,000 and demand for handbags increase 50 percent. Which type of good is a handbag? (A) A Giffen good. (B) A Veblen good. (C) An inferior good. (D) A substitute good (E) A factor of production.

B

A hurricane destroys a significant supply of bananas in 2011. As a result, the price of bananas increase. What prediction may be made regarding the supply of apples, a substitute good, when its market is in equilibrium? (A) The apple price rises, and the apple supply will increase. (B) The apple quantity supplied will increase. (C) The apple price falls, and the apple supply will decrease. (D) The apple price falls, and the apple quantity supplied will decrease. (E) Both the apple price and the apple quantity supplied are undetermined.

B

A limit on interest rates charged by credit card company is an example of a (A) Price floor. (B) Price ceiling. (C) Price support. (D) Consequence of minimum wage law. (E) Negative externality.

B

A warm winter results in a larger supply of wheat for the year. Corn is a substitute good for wheat. What happens to wheat and corn prices? (A) The corn prices stays the same and the wheat prices fall. (B) The corn price falls and the wheat prices falls. (C) The corn prices rises and the wheat prices falls. (D) The corn prices stays the same and the wheat prices rises. (E) The corn prices and the wheat price both increase.

B

Firm A and frim B offer high-speed Internet service. When firm B increases the price of its Internet service by 20 percent, people stop purchasing Internet service from firm B. In comparison with firm B's Internet service, firm A's Internet service is a(n) (A) Complementary good. (B) Perfect substitute. (C) Imperfect substitute. (D) Public good. (E) Inferior good.

B

If Michael's average yearly income increases and it is observed that his demand for steak has increased, then steal must be considered (A) An inferior good. (B) A normal good. (C) A determinant of supply. (D) A determinant of demand. (E) A necessity.

B

If a market surplus exists, establishing an effective price floor would (A) Reduce a market surplus. (B) Increase a market surplus. (C) Remove the need for government regulation. (D) Decrease demand. (E) Increase government regulation.

B

If corn oil is less substitutable for olive oil then corn oil will have (A) A higher cross-price elasticity of demand. (B) A lower cross-price elasticity of demand. (C) The same cross-price elasticity of demand. (D) A negative cross-price elasticity of demand. (E) An infinite cross-price elasticity of demand.

B

If the demand curve remains constant, and supply decreases, the result will be (A) A decrease in prices and a larger quantity sold. (B) An increase in prices and a smaller quantity sold. (C) A decrease in prices and a smaller quantity sold. (D) An increase in prices and a larger quantity sold. (E) None of the Above.

B

If the government establishes a price less than the market equilibrium price, then it is a(n) (A) Effective price floor. (B) Effective price ceiling. (C) Barrier to entry. (D) Barrier to exit. (E) None of the above.

B

If the price of a good decreases, the most likely result would be for the (A) Quantity supplied to increase. (B) Quantity supplied to decrease. (C) Demand to increase. (D) Supply to decrease. (E) Demand to decrease.

B

If there is joint demand for olives and mushrooms, then olives and mushrooms are (A) Substitute goods. (B) Complementary goods. (C) Normal goods. (D) Inferior goods. (E)Luxury goods.

B

Peanut butter and blackberry jam have a cross-price demand elasticity of -2. The price of peanut butter increases by 20 percent. As a result, quantity demanded for blackberry jam will (A) Fall 20 percent. (B) Fall 40 percent. (C) Rise 20 percent. (D) Rise 40 percent. (E) Remain the same.

B

Quantity demanded for pork is 10. the price of chicken increases 10 percent. If pork and chicken have a cross-price elasticity of 5, the new quantity demanded for pork will be. (A) 10 (B) 15 (C) 2 (D) 5 (E) 50

B

Sally works at a clothing store and the manager has cut her weekly shift from 30 to 20 hours, reducing her income. As a result, her demand for fresh vegetables decreases and her demand for canned vegetables increase. In the example which type of good is a can of vegetables. (A) A shortage good. (B) An inferior good. (C) A necessity. (D) A capital good. (E) A normal good.

B

The equilibrium price is established (A) A the next price above where the demand and supply curves intersect. (B) When the quantity supplied equals the quantity demanded. (C) At the next price below where the demand and supply curves intersect. (D) When you take the difference between the two lowest points plotted o the demand and supply curves. (E) At the price where either the demand or supply curve becomes horizontal.

B

The government places a tariff on imported cars. If price elasticity of supply cars is 0.6, and price elasticity of demand for cars is -0.4, what percentage of the tariff is paid by the car buyer? (A) 100 percent (B) 60 percent (C) 40 percent (D) 20 percent (E) 0 percent

B

The income effect refers to (A) The change in quantity demanded because of a change in price of a relative good. (B) The change in the quantity demanded because of a change in a consumer's purchasing power. (C) The change in a consumer's total utility from the consumption of a good. (D) Economic profits will be zero in the long run for a perfectly competitive market. (E) Collusive pricing tactics that oligopolies use.

B

The number of buyers in a market, consumer tastes, the availability of substitute goods, and income are known as (A) Factors of supply. (B) Determinates of demand. (C) Consumer expectations. (D) Factors of production (E) Marginal benefits.

B

The price of bread increases by 50 percent. As a result, quantity demanded for cheese falls 20 percent. The cross-price elasticity demand for bread and cheese is (A) 0.4 (B) -0.4 (C) 2.5 (D) -2.5 (E) 1

B

The price of sugar is currently $3 per pound. The government establishes a price floor at $2 per pound. What happens to sugar supply? (A) There will be an oversupply of sugar. (B) Quantity demanded will equal quantity supplied. (C) There will be an undersupply of sugar. (D) The supply curve for sugar will shift to the left. (E) The supply curve for sugar will shift to the right.

B

There is a 10 percent rise in the price of bottles water. This creates a 40 percent change in the quantity demanded, The demand for bottled water is considered to be (A) Perfectly inelastic (B) Elastic (C) Inelastic (D) Perfectly elastic (E) None of the above.

B

When quantity demanded is greater than quantity supplied, there is a(n) (A) Negative externality. (B) Shortage in the market. (C) Surplus un the market. (D) Increase in government regulation. (E) Decrease in unemployment

B

When the government establishes an intervention price and the price moves below this level, (A) Producer surplus decreases. (B) The demand curve shifts to the right. (C) The supply curve shifts to the left. (D) The equilibrium point shifts to the left. (E) Consumer surplus increases.

B

A grape farm uses fertilizer to produce grapes. Which will occur if the price of fertilizer increases. (A) The demand for grapes will increases. (B) The quantity of grapes demanded will increase. (C) The supply of grapes will decrease. (D) The quantity f fertilizer demanded will increase. (E) The supply of grapes will increase.

C

A price increase in product X resulted in an increase in demand for product Z. Product Z in most likely a(n) (A) Inferior good. (B) Complementary good. (C) Substitute good. (D) Normal good. (E) Factor of production.

C

According to the law of demand, (A) As the price of a good or service increases, the demand will shift to the right. (B) As the price of a good or service increases, the demand will shift to the left. (C) There is an inverse relationship between quantity demanded of a good or service and the price of that good or service. (D) As prices for a good or service increase, consumers will begin to use substitute goods. (E) As the price of a good or service increases, the quantity demanded will increase.

C

Consumer surplus is measured by (A) The area above the supply curve but below the price equilibrium. (B) The sum of buyer and seller surplus. (C) The area above the supply curve and above the price equilibrium. (D) The quotient of percentages change in quantity supplied and percentage change in price. (E) The quotient of percentage change in quantity demanded and percentage change in price.

C

Cross- price elasticity for corn and wheat is 0.75. The corn price rises 40 percent. As a result, the new quantity demanded for wheat is 13. What was quantity demanded for wheat before the corn price increased? (A) 16 (B) 17.5 (C) 10 (D) 8 (E) 7.5

C

Doherty Industries is a leading producer of an energy drink. Which of the following will cause Doherty Industries to offer more of the product at all possible sale prices. (A) A competitor lowers the price of the product. (B) The price of a key ingredient increases. (C) The price of a key ingredient decreases. (D) The demand for the energy drink decreases. (E) The demand is perfectly elastic.

C

German consumers experience a 30 percent income rise. Quantity demanded for oatmeal falls 15 percent in Germany. Income elasticity of demand for oatmeal is (A) 0.3 (B) 0.5 (C) -0.5 (D) 2 (E) -2

C

If you calculate the price elasticity of a good to be 0, you are correct to assume (A) It is a normal good. (B) It is a luxury good. (C) People will buy the good regardless of the price. (D) The good had few substitutes. (E) The good has few complements.

C

Mr. Harrington produces hot dog buns. Hot dog and hot dog buns are complementary goods. He is most likely to sell his hot dog buns at a higher price if (A) The price of hot dogs decreases. (B) There is an increase in consumer income. (C) The price of hot dogs increases. (D) A new technology is developed enabling an increase in hot dog production. (E) A new technology is developed enabling an increase in hot dog bun production.

C

Price elasticity of demand is an extremely useful tool in economics because (A) It indicates the equilibrium. (B) It predict the market force of supply and demand. (C) It shows how consumers behavior is affected by price. (D) It predicts how much firms will produce until the shutdown point. (E) It indicates a balance between long-run and short-run production costs.

C

The government imposes a $50 tax on television sets. Price elasticity of supply for television sets is 0.6 and price elasticity of demand for television sets is -0.2. As a result of the tax increase, a consumer who buys a television set will pay an additional (A) $50 (B) $0 (C) $37.50 (D) $25 (E) $12

C

The government places a tax on bicycle manufacturers. Bicycle supply is inelastic and demand is elastic. A possible response by bicycle manufactures would be (A) Raise bicycle prices. (B) Pass the tax hike to bicycle buyers. (C) reduce wages at the bicycle manufacturing plant. (D) Reduce bicycle prices. (E) Hire more employees.

C

The government raises the tax on a truck by $10,000. The price elasticity of supply for trucks is 1.5 and the price elasticity of demand is -1.0. Truck manufacturers will absorb costs of (A) $10,000 (B) $6,000 (C) $4,000 (D) $2,000 (E) $0

C

The number of substitutes for a good and time are known as (A) Determines of supply. (B) Determinants of demand. (C) Determinants of elasticity. (D) Factors of production. (E) Elements of Gini ratio.

C

The price of a golf ball increases from $1 to $1.25. As a result, golf ball sales fall by 50 percent. Demand for golf balls is (A) Inelastic. (B) Perfectly inelastic. (C) Elastic. (D) Perfectly elastic. (E) Neither elastic nor inelastic.

C

Which of the following is the LEAST elastic good? (A) Oil. (B) Cars. (C) Insulin. (D) Candy. (E) Computers.

C

A worker at the shoe store buys five pounds of rice, which is less expensive than other food items, each week. The rice farm increases the price of rice and the shoe store worker starts buying six pounds of rice each week. What type of good is the rice? (A) A Veblen good. (B) A normal good. (C) A substitute. (D) A Giffen good (E) A luxury good.

D

All of the following explain the downward slope of the demand curve EXCEPT (A) Income effect. (B) Substitution effect. (C) Diminishing marginal utility. (D) Complement effect. (E) The relationship between marginal benefit and marginal costs.

D

An effective price ceiling is usually set (A) Above the equilibrium price and quantity. (B) At the intersection of the supply and demand curves. (C) By subtracting the highest price for supply and the lowest point for demand on their respective curves. (D) Below the equilibrium price. (E) None of the above.

D

Another name for excess supply is (A) Disequilibrium. (B) Equilibrium point. (C) Gini ratio. (D) Surplus. (E) Shortage.

D

Demand for hamburgers increases. Hamburgers and hamburger buns are complementary goods. What happens to the demand curve for hamburger buns and the price? (A) The price of hamburger buns does not change and the demand curve shifts to the left. (B) The price of hamburger buns does not change and the demand curve shifts to the right. (C) The price of hamburger buns increases and the demand curve remains the same. (D) The price of hamburger buns increases and the demand curve shifts to the right. (E) The price of hamburger buns increases and the demand curve shifts to the left.

D

If Peter's average yearly income increase and it is observed that his demand for thrift-store-bought shoes decreases, then thrift-store-bought shoes must be considered (A) A normal good. (B) A shortage good. (C) A necessity. (D) An inferior good. (E) A determinant.

D

If a percent rise in gas prices creates a 0 percent decrease in the quantity demanded, the demand is said to be (A) Inelastic. (B) Perfectly elastic. (C) Elastic. (D) Perfectly inelastic. (E) None of the above.

D

If an increase in technology in a perfectly competitive firm only lowers the firm's costs of production, the effect will be? Price Quantity Profit (A) Decrease Decrease Decrease (B) Decrease Increase Increase (C) No change Decrease Increase (D) No change Increase Increase (E) Increase Increase Increase

D

What is likely to happen if the price of figs increases? (A) The supple of figs will increase. (B) The quantity of figs demanded will decrease. (C) The demand for figs will increase. (D) The quantity of figs supplied will increase. (E) None of the above.

D

Which of the following BEST represents an example of how price floor can be set? (A) When France decided to retaliate against Chinese tariffs by limiting the number of Chinese cars that could be imported. (B) When the United States imposed a retaliatory tax against Chinese solar panels. (C) When the Untied States imposed that all Canadian goods needed to pass another additional health inspection. (D) When the United States imposed that the minimum wage should be $10 per hour. (E) When France imposed a law that stated that you cannot charge rent unless you provide minimal living conditions.

D

If the demand for tennis rackets increase, which predication can be made regarding tennis balls? (A) The demand for tennis balls will fall. (B) The supply of tennis balls will remain the same. (C) The price of tennis balls will remain the same. (D) The supply of tennis balls will fall. (E) The price and the quantity supplied for tennis balls will increase.

E

Suppose it is necessary for tin to be used in the production of guitar stings. If the price of tin decreases and all other variables are constant, what will most likely result? (A) The demand for silver will increase. (B) The quantity demanded for guitars will decrease. (C) The demand for guitars will increase. (D) The supply of guitars will decrease. (E) The supply of guitar string will increase.

E

Suppose the demand for a product is inelastic. If producer wishes to increase total revenue, it should (A) Decrease prices. (B) Decrease the quantity supplied. (C) Increase the quantity supplied. (D) Hire more workers. (E) Raise prices.

E

The government establishing a price ceiling on good X above the equilibrium price. The result would. (A) Raise the price of the good. (B) Raise the price of the good and decrease the quantity demanded. (C) Lower the price of the good and increase the quantity demanded. (D) Lower the price of the good. (E) Have no effect on the price of the good or quantity demanded.

E

The price of a peach falls from $2 to $1.40. Quantity supplied for peaches falls from 100 to 85. Price elasticity of supply for peaches is (A) -0.5 (B) 2 (C) 0.3 (D) 0.15 (E) 0.5

E