AP Micro Pt. 2 (87-178)
An outward shift in the production possibilities curve of an economy can be caused be an increase in
the labor force
A country can consume beyond its present production possibilities curve when it
trades with other countries, thus taking advantages of different opportunity costs
If a one-of-a-kind Etruscan vase is offered for sale at an auction, which, if any, of the following correctly shows the supply curve for the vase?
vertical line
If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the effect on their wage and employment?
wage = increase, employment = decrease
For a perfectly competitive firm, assume the price equals a rising marginal cost at 200 units of output. At this output, average total cost is $8 and average variable cost is $5. If the price is $4, by how much can this firm reduce its losses by shutting down?
$200
Following a decrease in the supply of oranges, the price of orange juice increased by 20 percent, which resulted in a 10 percent increase in the quantity of apple juice consumed. This implies that the cross elasticity of demand between orange juice and apple juice is
0.5
Assume that the demand for a certain good is perfectly inelastic and the supply curve of the good is upward sloping. Which of the following occurs in the market for the good if the price of an input used to produce the good increases?
A decrease in the supply and an increase in the equilibrium price
An increase in which of the following will most likely result in a long-run surplus of a product?
A price is set by law above the equilibrium price
Economic growth can be depicted using a production possibilities curve by which of the following?
A rightward shift of the curve
At 100 units of a firm's output, average total cost is $10, average variable cost is $8, average fixed cost is $2, and marginal cost is $12. How will each of the following change as the firm's output further increases?
ATC = Increase, AVC = Increase, AFC = Decrease
If a normal good is produced in a competitive market, which of the following combination of events could cause the price of the good to increase and the quantity to decrease?
An increase in the average income of consumers and an increase in the price of a variable input
Assume that apple juice and grape juice are substitutes. Which of the following will cause an increase in the quantity of apple juice supplied?
An increase in the price of apple juice
Which of the following events will cause the demand curve for hamburgers to shift to the right?
An increase in the price of pizza, a substitute for hamburgers
Which of the following will decrease the demand for beef?
An increase in the price of potatoes, if potatoes and beef are complementary goods
Which of the following factors can cause a firm's cost curves to shift upward?
An increase in wages
When marginal product exceeds average product, which of the following must be true?
Average product is increasing.
Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will occur if the monopolist decreases its price?
Both total revenue and profits will decrease.
The following questions refer to the diagram below. The letters on the graph represent enclosed areas. If a price ceiling is set at P1, which of the following areas represent the resulting consumer surplus, producer surplus, and deadweight loss?
Consumer Surplus = f + g + i, Producer surplus = k, deadweight loss = h + j
The graph above shows the market for good X The letters in the graph denote the enclosed areas If the government imposes an excise tax of t dollars on each unit of good X, which of the following represents the consumer surplus, producer surplus, and deadweight loss after the imposition of the tax?
Consumer Surplus: A Producer Surplus: G Deadweight Loss: D+E
Suppose the government sets a price floor at $9 in the market. The resulting consumer surplus, producer surplus, and deadweight loss will be which of the following?
Consumer surplus = A, Producer surplus = B+C+D, Deadweight loss = E+F
If the market demand for a good is inelastic and the supply is elastic, which of the following is true when there is an increase in sales tax?
Consumers will bear most of the burden of the tax.
The graph above shows the supply and demand curves for a particular brand of computers. In 1988, 10,000 computers were sold for $1,000 each, but in 1989, 9,000 computers were sold for $1,000 each. Which of the following changes in the supply and demand curves could most likely have caused this change?
Demand curve = shifts left, supply curve = shifts left
The following question refers to the diagram below, which shows the demand and cost curves for a profit-maximizing firm. Which of the following statements best describes the graph?
Economic losses are incurred, and exit of firms from the market will cause prices to increase in the long run.
If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true?
Firms are earning a return on investment that is equal to their opportunity costs.
Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1. The deadweight loss created by the tax is equal to
GKI
The following chart shows the total utility that Juan receives from consuming various amounts of chocolate candy bars each day. Which of the following statements about Juan's marginal utility is correct?
His marginal utility from the first candy bar is greater than his marginal utility from the second candy bar.
For an economy with a straight-line production possibilities curve, which of the following must be true? The opportunity cost of producing another unit is constant. Resources are completely adaptable to alternative uses. Resources are used efficiently.
I and II
On the basis of the graph above, which of the following statements concerning changes in the demand for and supply of tomatoes is correct?
If the demand increases while the supply decreases, the price of tomatoes will definitely increase.
The following questions refer to the graph below, which shows the cost curves of a firm. Which of the following will be true if the firm is in a perfectly competitive market and the price is P1 ?
In the long run, existing firms in the industry will produce an output level greater than Q1.
At the current production level of good X, price is greater than marginal cost. Which of the following actions would lead to greater efficiency?
Increasing the production of good X
If a perfectly competitive firm increases its price above the market equilibrium price, which of the following will be true for this firm?
It will not be able to sell any output.
At the current output level, a firm finds that it has the potential to increase its profit by expanding output. If P = price, MR = marginal revenue, and MC = marginal cost, which of the following must hold at the current output for this firm?
MR > MC
For a firm where labor is the only variable input, which of the following happens when diminishing returns set in?
Marginal cost begins to increase.
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?
Marginal revenue is equal to marginal cost.
The graph above shows the supply and demand curves for gasoline. Which of the following will occur if the government establishes a price ceiling of $1.20 per gallon?
Neither a surplus nor a shortage
Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1. The total amount of tax collected by the government is equal to
P1GIP2
Total economic surplus will be maximized at which of the following price and quantity combinations?
P2 and Q2
Assume that consumers consider potatoes to be an inferior good, but consider rice to be a normal good. An increase in consumers' incomes will most likely affect the equilibrium price and quantity of potatoes and rice in which of the following ways?
Potatoes = price + Quantity = decrease Rice = price + quantity = increase
If this were a perfectly competitive industry with the same costs as shown on the graph, the equilibrium price and output would be which of the following?
Price = 0T, Output Q3
A decrease in raw material prices will change the equilibrium price and quantity in a market in which of the following ways?
Price = decrease, quantity = increase
Assume that both the supply of and the demand for a good are relatively price elastic. The imposition of a per-unit excise tax on the sale of the good would cause the equilibrium price and quantity to change in which of the following ways?
Price = increase, Quantity = decrease
A market is clearly NOT perfectly competitive if which of the following is true in equilibrium?
Price exceeds marginal cost.
A monopolist produces two unrelated goods, X and Y. The demand for X is currently price elastic and the demand for Y is currently price inelastic. To increase its total revenue, the firm should change the price of X and Y in which of the following ways?
Price of x = decreases, Price of y = increase
The following questions refer to the graph below, which shows the cost curves of a firm. If the firm produces Q1 units of output with two inputs, the firm will be experiencing which of the following in the short run and in the long run?
Short run = Diminishing Marginal Returns, Long Run = Economies of scale
Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?
Short run price = decrease, short-run industry output = decrease, movement firms = exit
Which of the following best explains why the short-run average total cost curve is U-shaped?
Spreading total fixed costs over a larger output, and eventually diminishing returns
In a perfectly competitive market, which of the following shifts in the supply and demand curves will definitely cause both equilibrium price and quantity to decrease?
Supply curve = no shift, Demand Curve = Shifts to the left
The graph above illustrates the labor market for teenage workers. The current minimum wage for all workers is W1. If Congress introduces a sub-minimum wage, W2 that applies only to teenagers, what is the most likely effect on teenage employment?
Teenage employment will increase because firms will want to hire more teenagers at W2 than at W1.
Assume a consumer finds that his total expenditure on compact discs stays the same after the price of compact discs declines. Which of the following is true for this price change?
The consumer's demand for compact discs is unit price elastic.
Assume that the original supply and demand curves of a commodity are S and D, respectively. Also assume that the government imposes an excise tax (per unit tax) of t dollars on the commodity, which shifts the supply curve to S1. Which of the following bears the total tax burden?
The consumers and the producers each bear a part of it.
The American Heart Association has just issued a report warning consumers about the negative health effects of eating beef. Which of the following changes in the beef market is most likely to occur as a result?
The demand curve will shift to the left, decreasing the price of beef.
Which of the following must be true if the revenues of wheat farmers increase when the price of wheat increase?
The demand for wheat is price inelastic.
If the price of a firm's variable input increases, which of the following will occur?
The firm will decrease its level of production.
The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm. If marginal revenue is equal to P1, all of the following statements are true EXCEPT:
The firm will increase production in the long run.
A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?
The firm's marginal costs will increase at each level of output.
A perfectly competitive firm is currently in long-run equilibrium. Its total revenue is $100,000, and the average total cost of production is $100. Which of the following can be concluded from this information?
The firm's output is 1,000 units, and its profit is zero.
An increase in which of the following will cause a firm's marginal cost curve to shift upward?
The price of a variable input
Which of the following would cause the equilibrium price of good X to increase?
The price of an essential input in the production of good X increases.
The graph above shows the supply and demand curves for artichokes. The surgeon general announces that eating an artichoke a day dramatically reduces one's likelihood of developing cancer. Simultaneously an infestation of the artichoke weevil severely damages the crop. Which of the following will definitely occur as a result?
The price of artichokes will increase.
A constant-cost, perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, which of the following will occur in the long run?
The price will remain unchanged.
Which of the following occurs if the price of oranges is below the equilibrium price?
The quantity demanded of oranges is greater than the quantity supplied.
Assume that popcorn and movie attendance are complements and that Salty Concession grows corn suitable for popping. Mr Concession will most likely sell a greater quantity of popping corn at a higher price if which of the following occurs?
The release of three summer movies sets records for movie attendance
If the government imposes a tax on the production of cars, which of the following will occur in the market for cars?
The supply curve will shift to the left.
Which of the following situations would necessarily lead to an increase in the price of peaches?
The wage paid to peach farm workers rises at the same time that medical researchers find that eating peaches reduces the chances of a person's developing cancer.
Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?
There is a price floor on the product.
Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?
There will be a shortage in the market.
The chart below shows the number of resource units the countries Gamma and Omega must use to produce one unit of food or one unit of clothing. Which of the following statements is true according to the chart above?
Trade should take place, with Gamma specializing in food production and Omega specializing in clothing production.
Technological advances will lead to
a decrease in average total costs
Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in the production of the other. An increase in the demand for leather will most likely cause
a decrease in the price of beef
Mr. Carpenter devotes his working time to producing tables and chairs. An increase in the demand for chairs will result in
an increase in his opportunity cost of producing tables
The supply curve for automobiles will shift to the left in response to
an increse in wages in the automobile industry
The following questions refer to the graph below, which shows the cost curves for a profit maximizing, perfectly competitive firm. The vertical distance CF represents the
average fixed cost of producing Q1 units of output
The diagram above shows the demand and supply curves for a normal good. The equilibrium price could rise from P1 to P2 if
consumers' incomes increased
A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should
continue to produce only if the new price covers average variable costs
In a perfectly competitive industry, the market price of the product is $12. A firm produces at a level of output where average total cost is $16, marginal cost is $16, and average variable cost is $8. To maximize its profit, the firm should
decrease output but keep producing
If a single firm can produce and supply an entire market at a lower unit cost than many small firms can, the long-run average total cost must be
decreasing as the firm's output increases
A merger of two firms may increase economic efficiency by
decreasing average total cost through an increase in economies of scale
As its output increases, a firm's short-run marginal cost will eventually increase because of
diminishing returns
Given the cost and demand schedules depicted above, if the firm increased output from q1 to q2, it would
experience a decline in profits
The following questions refer to the diagram below.The letters on the graph represent enclosed areas. When the market is in equilibrium, the total economic surplus is equal to area
f + g + h + i + j + k
The diagram above shows a perfectly competitive firm's short-run cost curves. If the price of the output increases from $8 to $10, the profit-maximizing firm will
increase output to 18 units because this is the output at which price equals marginal cost
A decrease in the supply of oranges raised the price of oranges in the market. The substitution effect of the price increase will motivate consumers to
increase the quantity of other fruits demanded and decrease the quantity of oranges demanded
When a perfectly competitive firm sells additional units of output, its total revenue will
increasing at a constant rate
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
inelastic
Assume that a consumer spends all her income on the purchase of two goods. If the consumer's income doubles and the prices of the two goods also double, the quantity of the two goods purchased will
not change
In the short run, a decrease in production costs of a product will shift
only the supply curve to the right
If a perfectly competitive firm wishes to maximize profits and is producing where price exceeds both marginal cost and average variable cost, then the firm is
producing too little output
