AP Micro Unit 2

c. Increase Indeterminate

A drought occurs in wheat-exporting regions of Russia at the same time as new medical research extols the immediate health benefits of eating wheat-based products. This would most likely cause equilibrium price and quantity to Price Quantity a. Increase Increase b. Increase Decrease c. Increase Indeterminate d. Decrease Decrease e. Decrease Remain the same

c. unit elastic

A local baseball team's concession stand sells hot dogs for $2 and earns $600 in revenue. The next week, the price is raised to $3, and the concession stand still earns $600 in revenue. In this situation, the price elasticity of demand is a. perfectly elastic b. elastic c. unit elastic d. inelastic e. perfectly inelastic

a. the supply curve to shift to the left

A short-run increase in the cost of production will cause a. the supply curve to shift to the left b. the supply curve to shift to the right, while demand will shift to the left c. the demand curve to shift to the left, while supply will shift to the right d. both the supply and demand curves to shift to the left e. the demand curve to shift to the left

b. an externality

A spillover cost passed on to a third party is a. a public good b. an externality c. a subsidy d. an excise tax e. a transfer payment

b. cause the price of sugar to increase and the production of sugar to decrease

A tariff on sugar imports will a. cause the price of sugar to increase and the production of sugar to increase b. cause the price of sugar to increase and the production of sugar to decrease c. cause the price of sugar to decrease and the production of sugar to increase d. cause the price of sugar to decrease and the production of sugar to be uncertain e. cause the price of sugar to be uncertain and the production of sugar to decrease

d. the quantity of pizza demanded will decrease

According to the Law of Demand, if the price of pizza increases, a. the demand for pizza will increase b. the demand for pizza will decrease c. the quantity of pizza demanded will increase d. the quantity of pizza demanded will decrease e. the change in the market for pizza cannot be determined

a. producers offer more of a product as its price increases

According to the Law of Supply a. producers offer more of a product as its price increases b. producers increase the price as supply decreases c. as the price increases, consumers buy less d. as more businesses enter the industry, price decreases e. producers sell more at lower prices

e. The marginal cost of the next unit of cleanup is greater than the marginal benefit

After a significant oil spill, why would the government choose to stop the cleanup of a shoreline before all of the oil has been completely removed? a. The marginal benefit of the next unit of cleanup is greater than the marginal cost b. The deadweight loss would decrease if the government cleaned up the next unit of oil c. The cleanup effort provides a negative externality for society d. The remaining oil provides a public good for society e. The marginal cost of the next unit of cleanup is greater than the marginal benefit

e. movie theaters

All of the following are pure public goods or services EXCEPT a. street signs b. sidewalks c. stop lights d. turn signals e. movie theaters

d. a decrease in theater ticket prices for the play

All of the following would change the demand for theater tickets to a particular play EXCEPT a. a change in consumer incomes b. a poor reviews by theater critics c. a severe weather forecast for the evening of the performance d. a decrease in theater ticket prices for the play e. a new, competing play opens at an adjacent theater

c. subsidize the consumer price of vaccinations

An appropriate policy to resolve the positive externality for vaccinations is to a. place a tax on vaccinations b. require pharmaceutical companies to provide free vaccinations c. subsidize the consumer price of vaccinations d. ration vaccines to ensure there are enough for all consumers e. import vaccines to meet the excessive consumer demand

c. a decrease in the quantity of rice demanded

An effective price floor for rice will cause a. a decrease in the quantity of rice supplied b. a long-run shortage of rice c. a decrease in the quantity of rice demanded d. the supply curve for rice to shift to the right e. the price of rice to fall

a. the demand for bananas increases while the supply of bananas decreases

As a result of forces in the market for bananas, the equilibrium price of bananas increases while the equilibrium quantity of bananas becomes uncertain. In this case, a. the demand for bananas increases while the supply of bananas decreases b. the demand for bananas and the supply of bananas both increase c. the demand for bananas and the supply of bananas both decrease d. the demand for bananas decreases while the supply of bananas increases e. the demand for bananas increases while the quantity supplied of bananas increases

e. premium quality meat is a normal good and processed ground meat is an inferior good

As income increases, consumers will purchase increasing amounts of higher-priced premium quality meat and lower amounts of processed ground meat, primarily because a. premium quality meat and processed ground meat are normal goods b. premium quality meat and processed ground meat are substitutes c. premium quality meat is a normal good and processed ground meat is substitute good d. premium quality meat is substitute good and processed ground meat is an inferior good e. premium quality meat is a normal good and processed ground meat is an inferior good

b. the demand for private cars would decrease and the demand for public transportation would increase

Assume drivers of private cars are required to buy private auto insurance. If the cost of private auto insurance were to increase, then a. the demand for private cars would decrease and the demand for public transportation would remain constant b. the demand for private cars would decrease and the demand for public transportation would increase c. the demand for private cars would decrease and the supply of public transportation would increase d. the demand for private cars and the demand for public transportation would decrease e. the demand for private cars and the supply of public transportation would increase

e. quasi-public goods and services that offer benefits well beyond the benefit to individual buyers and would likely be under-produced in the market system

Goods and services that are produced by the government and are delivered with the possibility of exclusion are a. public goods and services because the government produces and offers them to the public b. quasi-public goods and services that would likely be under-produced in the market system because they benefit the individual buyers but do not benefit others c. private goods and services that government offers to provide significant employment for civil servants d. public goods and services that government offers to provide significant employment for civil servants e. quasi-public goods and services that offer benefits well beyond the benefit to individual buyers and would likely be under-produced in the market system

b. the marginal cost of the next unit equals the marginal benefit of that unit

Government provides the optimal amount of a public good when a. the government maximizes its profit b. the marginal cost of the next unit equals the marginal benefit of that unit c. the national debt is minimized d. taxpayers maximize their satisfaction with the level of taxation e. the marginal cost of the next unit equals the marginal revenue in taxes for that unit

c. I and II only

Government-provided flood control systems have which of the following characteristics? I. They are non-exclusive services. II. They are non-rival services. III. They are exclusive but publicly owned. IV. They are rival services but publicly owned. a. I only b. II only c. I and II only d. I and IV only e. II, III, and IV only

b. the price of bicycle helmets increases significantly

Each of the following could result in an increased demand for bicycles EXCEPT a. the price of gasoline increases significantly b. the price of bicycle helmets increases significantly c. the local government develops several bicycle trails in the area d. consumer incomes increase e. the number of children in the community increases

c. I and III only

Elasticity of supply is greater in the long run than in the short run because I. business owners have more time to expand factories and buy equipment II. consumers have more time to compare quality and prices of products III. more competitors are able to enter the industry a. I only b. II only c. I and III only d. II and III only e. I, II, and III

d. elastic

If a percentage change in price causes a larger percentage change in the quantity demanded, the demand is a. perfectly inelastic b. inelastic c. unit elastic d. elastic e. perfectly elastic

c. the sum of all individual demands for a product

Market demand consists of a. the government's demand for products in the market b. a business's demand for public goods c. the sum of all individual demands for a product d. entrepreneurs' willingness to start new businesses e. an individual consumer's demand for a product in the market

d. fails to reflect the full cost of producing a good or service

Supply-side market failure occurs when the supply curve a. fails to reflect the goods or services in the quantities that some consumers most desire b. fails to reflect the variety of goods and services that some consumers most desire c. fails to reflect the consumer's full willingness to pay for a good or service d. fails to reflect the full cost of producing a good or service e. fails to reflect the both the full willingness of consumers to pay for a good or service and the full cost of producing that good or service

d. demand for cable television is price inelastic

The cable television company increases its monthly price for basic service. The firm'srevenues will only increase if a. demand for cable television is price elastic b. demand for cable television is income elastic c. supply of cable television is price elastic d. demand for cable television is price inelastic e. supply of cable television is unit elastic

e. No change Increase

Which of the following curve shifts would definitely cause both the equilibrium price and equilibrium quantity to increase? Supply Demand a. Increase Decrease b. Decrease Decrease c. No change Decrease d. Increase No change e. No change Increase

b. A highway

Which of the following products meets the definition of a public good? a. A car b. A highway c. A haircut d. A vacation e. A newspaper

d. II and III only

Which of the following would increase the supply ofcell phones? I. The government levies a per-unit tax on the producers of cell phones. II. The number of cell phone producers increases. III. Technological advances lower the per-unit cost of cell phone production. IV. The cost of cell phone components increases. a. I only b. II only c. I and IV only d. II and III only e. II, III, and IV only

e. I, II, and III

Which of these policies would resolve a negative externality? I. Institute a per-unit tax on production. II. Limit the amount of external cost the firm can impose. III. Fine firms that produce the externality. a. I only b. III only c. I and III only d. II and III only e. I, II, and III

c. Producers improve productivity with computerized sewing machines.

Which of these situations would cause an increase in the supply of jeans? a. The cost of cotton used to produce jeans increases. b. The number of firms producing jeans decreases. c. Producers improve productivity with computerized sewing machines. d. Consumers increase their demand for jeans. e. The government imposes a per-unit tax on the production of jeans.

a. When the price of books increases, consumers buy fewer books.

Which situation is the best example of the Law of Demand? a. When the price of books increases, consumers buy fewer books. b. When wages of autoworkers rise, automakers raise the price of cars. c. When the price of computers falls, demand for computer games increases. d. When the productivity of bricklayers rises, demand for bricklayers falls. e. When consumer incomes rise, consumers buy more televisions.

e. Consumers who fail to pay cannot be prevented from using public goods.

Why does the market fail for public goods? a. Public goods generally cost more than consumers are willing to pay. b. Consumer demand exceeds the supply of public goods. c. Supply and demand shift so frequently that no price can be set. d. Consumers gain less utility from public goods than from private goods. e. Consumers who fail to pay cannot be prevented from using public goods.

d. II only

Within the market system, most economic decisions occur through I. government regulation and judicial intervention II. competition among buyers and sellers III. government policy limiting anti-competitive behavior combined with regulatory intervention a. I and III only b. I and II only c. II and III only d. II only e. I only

b. are substitute goods; if the price of one increases, the demand for the others will increase

f between two related goods X and Y, the coefficient of cross-price elasticity of demand is positive, then those two goods a. are complementary goods; if the price of one increases, the demand for the other will decrease b. are substitute goods; if the price of one increases, the demand for the other will increase c. are complementary goods; if the price of one increases, the quantity demanded for the other will increase d. are substitute goods; if the price of one increases, the quantity demanded for the other will increase e. could be either substitutes or complements

c. gasoline

A 10% increase in price is least likely to affect the quantity demanded of a. movie tickets b. cars c. gasoline d. ice cream e. toys

e. toothpaste

A change in consumer income is least likely to affect the quantity demanded of a. cars b. DVDs c. restaurant meals d. piano lessons e. toothpaste

d. I, II, and IV

A deadweight loss results from overproduction or underproduction in markets, representing a loss of I. producer surplus II. consumer surplus III. profit IV. efficiency a. III only b. I and III only c. II and IV only d. I, II, and IV e. I, II, III, and IV

a. 2, indicating that demand is elastic

Assume that when the price of candy increases by 10%, the quantity sold decreases by 20%. The elasticity of demand for candy is a. 2, indicating that demand is elastic b. 2, indicating that demand is inelastic c. 0.5, indicating that demand is elastic d. 0.5, indicating that demand is inelastic e. 0.5, indicating that demand is unit elastic

e. the quantity of gasoline demanded and supplied will not change

Assume the market price of gasoline is $4.00 per gallon. If the government establishes a price ceiling of $5.00 per gallon a. the quantity of gasoline demanded will increase b. the quantity of gasoline demanded will decrease c. the quantity of gasoline supplied will increase d. the quantity of gasoline supplied will decrease e. the quantity of gasoline demanded and supplied will not change

a. resources are over-allocated to this industry and prices are set too low

Because unregulated polluters do not include all of their costs of production in their output decisions, a. resources are over-allocated to this industry and prices are set too low b. resources are over-allocated to this industry and prices are set too high c. resources are under-allocated to this industry and prices are set too low d. resources are under-allocated to this industry and prices are set too high e. government must provide the products in order to reduce pollution

d. the price consumers were willing to pay and the equilibrium price

Consumer surplus is the difference between a. the price firms were willing to charge and the equilibrium price b. the quantity consumers were willing to buy and the quantity firms were willing to sell c. the quantity consumers were willing to buy before and after a tax increase d. the price consumers were willing to pay and the equilibrium price e. the quantities supplied and demanded at a price above the equilibrium price

c. the product is a necessity

Demand for a product tends to be more price inelastic if a. the consumer can find many available substitutes for the product b. the product is expensive in relation to the consumer's income c. the product is a necessity d. the consumer's income is falling e. the consumer rarely buys complements for the product

c. fails to reflect the consumer's full willingness to pay for a good or service

Demand-side market failure occurs when the demand curve a. fails to reflect the goods or services in the quantities that some consumers most desire b. fails to reflect the variety of goods and services that some consumers most desire c. fails to reflect the consumer's full willingness to pay for a good or service d. fails to reflect the full cost of producing a good or service e. fails to reflect the both the full willingness of consumers to pay for a good or service and the full cost of producing that good or service

a. are complementary goods; if the price of one increases the demand for the other will decrease

If between two related goods X and Y, the coefficient of cross-price elasticity of demand is negative, then those two goods a. are complementary goods; if the price of one increases the demand for the other will decrease b. are substitute goods; if the price of one increases, the demand for the other will decrease c. are complementary goods; if the price of one increases, the demand for the other will stay the same d. are substitute goods; if the price of one increases, the quantity demanded for the other will increase e. could be either substitutes or complements

e. zero

If customers buy a quantity of seven products per week, regardless of the price, the numeric value of the price elasticity of demand for the product is a. infinity b. greater than one c. equal to one d. less than one e. zero

d. Products X and Y are substitutes

If demand for Product X decreases when the price of Product Y decreases, then a. Products X and Y are not related b. Products X and Y are both inferior goods c. Products X and Y are complements d. Products X and Y are substitutes e. Product X is a normal good, while Product Y is an inferior good

e. the prices of blackberries and raspberries would increase

If raspberries and blackberries are substitutes and a new crop disease were to limit the harvest of raspberries, then a. the prices of blackberries and raspberries would be uncertain b. the price of blackberries would increase but the price of raspberries would decrease c. the price of blackberries would increase but the price of raspberries would be uncertain d. the price of blackberries would be uncertain but the price of raspberries would increase e. the prices of blackberries and raspberries would increase

c. positive externalities exist, market failure has occurred, and the governemt should intervene with corrective subsidies

If the market economy provides less of a needed good or service than is economically justifiable, then a. negative externalities exist, market failure has occurred, and the government should intervene with corrective subsidies b. negative externalities exist, market failure has occurred, and the government should intervene with corrective taxes c. positive externalities exist, market failure has occurred, and the government should intervene with corrective subsidies d. positive externalities exist, market failure has occurred, and the government should intervene with corrective taxes e. both positive and negative externalities exist, market failure has occurred, and the government should intervene with corrective subsidies and taxes

c. the coefficient of elasticity of supply is greater than 1

If the price elasticity of supply is elastic, then a. the coefficient of elasticity of supply is less than 1 b. the coefficient of elasticity of supply is equal to 1 c. the coefficient of elasticity of supply is greater than 1 d. the coefficient of elasticity of supply is negative e. the coefficient of elasticity of supply is positive but less than 1

b. an increase in the price of shoes

In a competitive shoe market, if consumer incomes rise at the same time that the cost of production rises for shoes, one definite result would be a. an increase in the quantity of shoes sold b. an increase in the price of shoes c. an increase in the profits of shoemakers d. a decrease in the demand for slippers (a substitute for shoes) e. a decrease in the supply of slippers (a substitute for shoes)

a. reducing the product price

In the elastic portion of a firm's demand curve, the firm can raise its revenue by a. reducing the product price b. hiring additional workers c. lowering the quantity produced d. raising the product price e. increasing its cost of production

d. is more elastic than in the immediate period because the producer can adjust some, but not all, factor inputs in response to market conditions

In the short run, the supply curve that a producer faces a. is perfectly elastic because the producer can adjust all factor inputs in response to market conditions b. is perfectly inelastic because the producer cannot adjust any factor inputs in response to market conditions c. is more elastic than in the immediate period because the producer can adjust all factor inputs in response to market conditions d. is more elastic than in the immediate period because the producer can adjust some, but not all, factor inputs in response to market conditions e. is more elastic than in the long run because the producer can adjust some, but not all, factor inputs in response to market conditions

c. consumers failing to take into account all of the benefits of the product

Positive externalities are characterized by a. businesses passing costs onto people who are not consumers of the product b. overproduction of the product c. consumers failing to take into account all of the benefits of the product d. marginal private benefit exceeding marginal social benefit e. exclusive ownership of the product

a. the minimal price a producer would accept and the price that is actually charged in the market

Producer surplus is the difference between a. the minimal price a producer would accept and the price that is actually charged in the market b. the quantity a producer supplies and the quantity consumers demand c. the maximum price a consumer is willing to pay and the price actually charged in the market d. the quantity a business produces before and after government imposes a price floor e. the quantity a business produces before and after government regulation

e. I, II, III, and IV

Properly functioning competitive free markets achieve I. optimal productive and allocative efficiency II. demand curves that reflect the consumer's full willingness to pay III. supply curves that reflect the full costs of production IV. optimal consumer and producer surpluses a. I only b. I and IV only c. II and III only d. I, II, and III only e. I, II, III, and IV

d. street lighting

Quasi-public goods and services include all of the following EXCEPT a. education b. landfills c. highways d. street lighting e. fire protection

e. I, II, III, and IV

The determinants of price elasticity of demand generally include I. substitutability II. time III. proportion of income IV. luxuries versus necessities a. I and II only b. I, II, and III only c. I, II, and IV only d. I, III, and IV only e. I, II, III, and IV

a. a non-excludable good or service but does not pay for it

The free-rider problem occurs when an individual derives benefits from a. a non-excludable good or service but does not pay for it b. a rival good or service but does not pay the market price for it c. any good or service but does not pay the market price for it d. an excludable good or service but pays less than the market price for it e. a non-excludable good or service but pays less than the market price

b. the demand is elastic and the coefficient of price elasticity of demand is greater than 1

The government decides to increase the per-unit tax on the producers of a good only to find that total tax revenue generated by the tax declines. Then, in that range, a. the demand is inelastic and the coefficient of price elasticity of demand is less than 1 b. the demand is elastic and the coefficient of price elasticity of demand is greater than 1 c. the demand is inelastic and the coefficient of price elasticity of demand is greater than 1 d. the demand is elastic and the coefficient of price elasticity of demand is less than 1 e. the demand is elastic and the coefficient of price elasticity of demand is equal to 1

b. most consumers will continue to buy the product even at the higher price

The government places excise taxes on products which have inelastic demand because a. consumers are more sensitive to the change in price of inelastic-demand products b. most consumers will continue to buy the product even at the higher price c. federal law requires consumers to buy products that have inelastic demand d. as the price increases, consumers buy a significantly lower quantity of the product e. it is attempting to entice consumers to buy elastic-demand products as substitutes

a. advisable because demand was in the price-inelastic range

The price per theater ticket was $2. In an effort to increase total revenue, the theater company raised the per-ticket price to $3. This decision was a. advisable because demand was in the price-inelastic range b. inadvisable because the elasticity coefficient was less than 1 c. advisable only if the elasticity coefficient were greater than 1 d. inadvisable because demand was in the price-elastic range e. advisable because demand was in the price-elastic range

d. help consumers by lowering the legal price of the product

The purpose of a price ceiling is to a. help producers by setting a minimum legal price for a product b. raise revenue for the federal government c. create a surplus of the product to be saved for future use d. help consumers by lowering the legal price of the product e. ensure that enough of the product is produced to fully meet demand

c. I and III only

When the competitive market over-allocates resources to the production of a good that affects non-consumers, the market has created I. negative externalities that private negotiations among affected parties can correct II. positive externalities that legislation can correct III. negative externalities that specific taxation to cover spillover costs can correct IV. positive externalities that specific subsidies to cover spillover benefits can correct V. negative externalities that specific subsidies to cover spillover costs can correct a. I only b. II only c. I and III only d. II and IV only e. I, III, and V only

b. the market is producing the mix of goods most highly valued by society

When a competitive market is in equilibrium, it achieves allocative efficiency, meaning that a. businesses are producing products at their lowest per-unit cost b. the market is producing the mix of goods most highly valued by society c. each household receives an equivalent amount of the product d. businesses are producing at a cost that leaves them no normal profit e. government has set the price it determines to be most efficient for society

e. I, II, and III

When the competitive market fails to employ the scarce resources of a society in the most efficient manner, then I. resources are being under- or over-allocated II. market failure has occurred III. government intervention may improve outcomes a. I only b. II only c. III only d. I and II only e. I, II, and III

d. efficiency increases

When the government imposes a tax to correct a negative externality a. deadweight loss increases b. consumer surplus decreases c. producer surplus decreases d. efficiency increases e. the overallocation of resources to produce the product increases