AP Microeconomics Practice Test1. A production possibility curve might be shifted outward by each of the following EXCEPT; A. Increase in immigration B. Movement toward a more open approach to free trade C. Decrease in unemployment D. Increase in educational levels of the general population E. All of the above would shift the PPC outward 2. A production possibility frontier that is represented by a straight line rather than the usual bowed shape would indicate; A. Increasing opportunity cost B. Decreasing opportunity cost C. Constant opportunity cost D. Absolute and Comparative Advantage E. Comparative but not absolute advantage Figure 2 4. Which of the graphs shown in Figure 2 correctly demonstrate the concept of increasing opportunity cost? A. A B. B C. C D. D E. E 5. If a legal price ceiling is established on a good above the existing equilibrium price, the effect would be to: A. Raise the price of the good and lower the quantity purchased B. Have no effect on the price or quantity of the good C. Lower the price of the good and lower the quantity purchased D. Raise the price of the good and raise the quantity purchased E. Lower the price of the good and increase the quantity purchased Figure 1 3. If the current price for the perfectly competitive firm represented in Figure 1 is $10.00, what would be the result of an increase in fixed cost on the firm’s profit maximizing price and quantity? A. Price increase and Quantity increase B. Price increase and Quantity decrease C. Price constant and Quantity constant D. Price decrease and Quantity decrease E. Price decrease and Quantity increase Figure 3 6. Chasey Company Inc. is the only producer in a small town. Cost and revenue information for the Chasey Company are shown in Figure 3. Chasey Company would set the price of its product at; A. $7.50 B. $6.00 C. $4.50 54066400.doc D.doc .00 54066400. $3. E.75 $3. In Figure 5 at a market price of A. In Figure 3 the Chasey Company would maximize profits by producing a quantity of. 1 C. P = MC B. 140 E. Based on that data. 0 B. 4 14. 5 D. The profit-maximizing price for a perfectly competitive firm like the one shown in Figure 5 in the long run would be. A. 8 D. 8 54066400. 2 C. MR = AR 9. In Figure 4 the “law of diminishing returns” sets in with the addition of the _____ worker. if workers are paid $35 and the product being produced sells for $10. $150 E. $150 loss Figure 4 Number of workers 0 1 2 3 4 5 6 7 8 Output 0 5 11 19 25 29 31 31 30 Figure 5 12. MR = MC D. A. 7 E. 1 B. $300 D. 1 B. A B. D E. B C. $450 C. A. 100 C. 4 C. 60 10.7. the marginal physical product of the 4th worker is. 170 8. A. MR = P E. 8 11. Figure 4 represents production data for a perfectly competitive firm. the profit-maximizing output for a perfectly competitive firm is A. 3 E. $750 B. E 13. Which of the following correctly describes the profit maximizing position for all firms regardless of the market structure under which they are operating? A. 2 D. 6 C. 60 B. P = ATC C. how many workers would the Chasey Company hire? A. 4 B. In Figure 3 the Chasey Company will make a profit of _______. 7 E. 25 E. 4 D. Using the data in Figure 4. C D. A. 120 D.doc . 00 $2. B. C D. A good with a positive externality E. Graph A demonstrates inefficiency through underproduction E. It is impossible to determine the correct answer to the question from the information given.00 $200 $175 $150 $125 $100 Quantity demanded of Good A 20 40 60 90 100 16. Graph B demonstrates inefficiency through overproduction 20. E. Given that MSC is marginal social cost and MPC is marginal private cost. it can be correctly concluded that A. P=MC E. C.00 $1. An inferior good C. Decrease by $700 E. Equilibrium price is indeterminate III. A Giffen good D.18. Both graphs demonstrate the existence of externalities B.00 to $4. A. B C. Both graphs demonstrate the existence of positive externalities D. Which of the graphs in Figure 6 indicate that a firm can sell any or all of its output at the prevailing market price? A. but instead movement will be along each curve 21. What would be the effect on total revenue of changing the price from $5. A good with a negative externality I. In order for resources to be efficiently allocated. P=AC C. Both graphs demonstrate the existence of negative externalities C. A normal good B. Increase by $160 B. Equilibrium quantity will rise IV. Figure 7 Assume that the following information is for Good A. D. the firm’s supply curve will shift to the right B. If a natural disaster occurs that adversely affects production and shipping. what rule must be satisfied? A.00 $4. based on the information in Figure 7? A. Equilibrium quantity is indeterminate A. D E. Increase by $60 D. Decrease by $300 17. MR=MC B. Neither curve will shift. based on the two graphs in Figure 8. Equilibrium price will rise II. Figure 8 19. If supply and demand both increase. Based on the information in Figure 7 it can be correctly concluded that good A is A. the firm’s demand curve will shift to the left D. the firm’s supply curve will shift to the left E.00 $3. we can correctly conclude that Price of Good A Income of Good A Consumers $5. I only I and III only II and IV only II and III only I and IV only 54066400.00. P=MR D. Increase by $100 C. P=AR Figure 6 15. the firm’s demand curve will shift to the right C.doc . A B. Capital. E 29. B. public goods D. B C. As output increases the difference between them gets larger C. Is equal to average fixed cost at all levels of output D. Money. E. B C. If your insurance company informed you that your insurance premium had been increased. C D. Savings. Established customs and traditions decide which goods II. regular goods B. Which of the following embodies most of the principles of a pure public good? A. A. Labor. Land. _____. Money. Average Variable Cost Average Fixed Cost No Change No Change No Change Increase Increase Increase Increase Increase No Change Increase Marginal Cost No Change No Change No Change Increase Increase 54066400. Land. limited E. As output increases the difference between them gets smaller B. unlimited D. Which graph in Figure 9 shows a profit maximizing natural monopoly? A. GDP. what effect would this have on your business? Figure 9 27. D. The scarce productive resources are _____. then these two goods are A. D. GDP. III. complementary goods E. All of the above market structures 26. Capital. Pure monopoly B. B. D E. Perfect competition E. Production. Oligopoly C.22. independent goods 24. Production. Entrepreneurship. and wants are _____. Game theory. If an increase in the price of one good increases the demand for another good. Taking the Advanced Placement economics examination B. E 28. _____. Savings. and price leadership are explanations for the profit-maximizing behavior of a firm under which of the following market structures? A. limited C. Monopolistic competition D. unlimited B. Capital. Which graph in Figure 9 shows the long-run profit maximizing position for a monopolistic competitor? A. and services will be produced Voluntary exchange determines which goods and services get produced Government determined prices help producers allocate scarce resources I only II only III only I and II only II and III only 23. Which of the following is true about the distances between average variable cost and average total cost when graphed? A.doc . C. D E. A B. A new economics book E. A. A new car D. Street lights C. Labor. Money. Entrepreneurship. Is zero at all levels of output E. All of the above A. E. A B. Land. C D. substitute goods C. _____. C. A and C are both correct 25. Market based economies allocate resources in which of the following ways? I. unlimited 30. Labor. elastic supply D. All of the above are used to explain consumer behavior 37. None of the above 33. The value of the marginal product of labor would decrease C. The value of the marginal product of labor would increase B. Equally by producers and consumers D. Models of consumer behavior explain the downward slope of a demand curve with each of the following EXCEPT: A. In which of the following combinations would a change in price result in the largest decrease in equilibrium quantity? A. 14 B. Which of the following would shift the demand for a good to the right? A. quantity. A decrease in the cost of production B.doc . Based on Figure 10 if S1 represents supply before the imposition of an excise tax and S2 represents supply after the tax is imposed. Decrease in the number of producers and increased numbers of consumers D. increase increase Quantity decrease increase decrease increase increase Profit decrease Figure 10 32. 64 D. elastic demand. 78 E. no change increase D. Every taxpayer pays $10. decrease increase C. Higher income taxpayers pay a higher percent of their income in tax D. Each of the following would definitely raise the equilibrium price of a good with the single exception of: A. inelastic supply B. Price decrease B. Income effect D. If one firm in a perfectly competitive industry experiences a technological breakthrough that lowers only that firm’s cost of production. None of the above correctly describes a progressive tax 35. Which of the following is a progressive tax? A. Lowered cost of raw materials and increased popularity of the product B. Producers entirely B. Higher income taxpayers pay a lower percent of their income in tax E. which of the following correctly describes the effect on this firm’s price. which of the following would happen if the workers became more productive and at the same time the price of the product fell? A. elastic supply C. Decrease in the number of producers and an increase in the price of a substitute good E. A decrease in the price of the good C. Consumers entirely C. Increased cost of raw materials and increased popularity of the product C. elastic demand. inelastic demand. inelastic demand. An increase in the price of other goods that could be made by the producer and an increase in the incomes of the consumers of the good in question 36. The burden (or incidence) of the tax in Figure 10 would be borne by A. The value of the marginal product of labor would be indeterminate D. Every taxpayer pays 10% of his/her income C.00 B. 30 C. none of these choices would influence the equilibrium quantity 38. no change increase E. Complement effect C. The demand for labor would shift to the left 39.31. how much is the tax? A. and profit? A. More by consumers than producers 34. More by producers than consumers E. An increase in the price of the good 54066400. The demand for labor would shift to the right E. In the factor market. Diminishing marginal utility E. inelastic supply E. Substitution effect B. doc . products The introduction into the market of many similar The removal from the market of many similar E.D. products 54066400. is a concept used by J. A decrease in demand 44. A firm uses workers and seed to grow lettuce. Economists tend to see ticket scalping as A. diminishing returns to labor C. increasing returns to scale D. average total cost. a decrease in equilibrium price E. A decrease in the cost of production C. constant returns to labor 41. is the name of a Great Depression radio program B. an ingredient in caramel corn. marginal cost. The “invisible hand” A. Its production process shows A.40. CAPITALUnits of Which of the following would contribute to a reduction in consumer surplus? A. decreasing returns to scale B. average variable cost.M. OB. imposition of an effective price floor B. only marginal cost will increase B. Government provides many goods and services to the public because free markets do not provide them. decrease consumer surplus and decrease producer surplus D. The following table indicates a production process characterized by A. increasing long-run average cost 46. and average fixed cost will increase Units of LABOR 45. but instead maximize the size of a program constrained only by the need to have total benefit greater than or equal to total cost. all of the above would contribute to a reduction in consumer surplus OUTPUT 6 5 4 3 2 1 0 346 316 282 245 200 141 1 490 448 400 346 282 200 2 600 548 480 423 346 245 3 692 632 564 490 400 282 4 775 705 632 548 448 316 5 846 775 692 600 490 346 6 42. Which of the following correctly describes the effect that this increase will have on the cost of production? A. only marginal cost and average total cost will increase C. OD D. increasing returns to scale D. imposition of an effective price ceiling C. Setting an effective price floor would: A. An increase in the price D. an increase in supply D. An increase in the cost of production B. marginal cost. increase consumer surplus and decrease producer surplus C. is a concept used by Adam Smith to describe the virtues of free markets C. increasing returns to labor E. constant returns to scale C. leave both consumer and producer surplus unaffected 47. decreasing returns to scale B. a way for a few to profit while producing nothing of value Figure 11 43. OC C. OA. increasing returns to labor E. Some economists believe bureaucrats who manage the programs have no interest in maximizing net benefits. marginal cost. OD.doc . and average fixed cost will increase E. Figure 11 shows total benefits and cost curves for a program. Keynes to describe the role of government in guiding the allocation of resources in the economy D. OD. increases in price by 10%. Karen’s Karmel Korn produces a type of caramel corn candy. and what point will the bureaucrat choose? A. Which of the following would shift the supply of a good to the left? A. average total cost. What point is the efficient point. decrease consumer surplus and increase producer surplus E. Caramel. average variable cost. A decrease in the price E. average total cost will increase D. OA. OC E. increase consumer surplus and increase producer surplus B. OA 54066400. is a concept used by John Gailbraith to describe market failure E. always rewards individuals for using the wellbeing of society as the basis for economic decision-making 48. Its output rises from 100 tons to 200 tons when the number of workers increases from 25 to 75. OB B. B. a way of increasing the efficiency of ticket distribution D. an unproductive activity which should be made illegal everywhere E.doc . a way of decreasing the efficiency of ticket distribution 54066400. an inequitable interference in the orderly process of ticket distribution C. C. P = minimum ATC. P = MC. the firm will lose money by producing any level of output B. 90 E.00. which panel(s) best represent(s) a binding rent control in the short run? A. elasticities cannot be determined over the given output range without supply information E. Refer to Figure 14. VMP = MRC.3 Marginal Cost 50 40 35 35 40 45 50 60 53. but 6 in the long run C. and P = MC C. demand curve two is more price sensitive over the given output range than demand curve one D.doc A. MC = MR. and MRP = VMP 54066400. what will happen to each of the following? Average Variable Cost A. all of the panels 51. In Figure 13. 35 B. 40 C. one measures efficiency from a production perspective and the other measures efficiency from an allocation perspective. Given the information represented by the graph we can say that A. and MC = MR D. There are two generally recognized measures of economic efficiency. but 7 in the long run E. to maximize profits this firm will produce: Figure 13 50. increase increase no change no change no change Average Total Cost increase increase increase increase no change Marginal Cost increase no change increase no change increase . and MC = MR C. demand curve one is more price sensitive over the given output range than demand curve two B. 200 54. If product price is $47. If fixed costs increase by 100. and P = MC Figure 12 49.8 42. P = MC. Refer to Figure 14.1 44. Refer to Figure 14.3 Average Total Cost 250 145 108. P = minimum ATC.1 70. and P = AR B. The profit maximizing level of production in the product market. Refer to Figure 12. B. B C. and P = MR D. zero. both demand curves have the same price elasticities over the given output range C. zero in the short run. and in the order mentioned in the question? A. zero in the long run. and VMP = MRC B. P = MR. 7 in the long run. 50 D. A B. P = MC. MC = MR. but 6 in the short run D. but 1 in the short run 55. elasticities cannot be determined over the given output range without price information being given Quantity of Output 0 1 2 3 4 5 6 7 8 Figure 14 Average Variable Cost 50 45 41. and P = AR E. E. and the profit maximizing level of employing resources in the factor market are represented by which of the following combinations? A. The average fixed cost of producing 4 units of output is: A.4 90 80 74. P = minimum ATC. and P = MC E.7 40 40 40.7 69. C D. D. none of the panels E.52. 1 in the short run. Which of the following correctly states these two measures of efficiency. AR > MR B. D. A price discriminating monopolist would differ from a non-price discriminating monopolist in which of the following ways? Profit A. Which of the following correctly describes a perfectly competitive firm’s short run supply curve? A. Section A.56. economies of scale. E. economies of scale D. MR > AR 54066400. diseconomies of scale. constant returns to scale. B. economies of scale. E.doc . diseconomies of scale. rising portion of the marginal cost curve above average total cost 59. rising portion of the marginal cost curve above average variable cost E. constant returns to scale B. D. rising portion of the marginal cost curve C. same with both Consumer surplus higher w/ price discrimination higher w/ price discrimination higher w/ price discrimination lower w/ price discrimination lower w/ price discrimination lower w/ price discrimination lower w/ price discrimination higher w/ price discrimination the same with both the C. constant returns to scale. constant returns to scale E. marginal cost curve B. Under conditions of imperfect competition which of the following is true for a profit maximizing firm? A. constant returns to scale. diseconomies of scale C. B. AR > P AR < P AR = MR Figure 15 57. diseconomies of scale 58. economies of scale. Figure 15 shows short run and long run average total cost curves. C. rising portion of the marginal cost curve above equilibrium D. and C respectively demonstrate: A. diseconomies of scale. economies of scale. what is the only answer set that could be answered zero. Perfect competition Monopolistic competition Oligopoly Pure monopoly All of the above 54066400.doc . and yes? Long Run Profits Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Efficient Producer A. B. D. E. C.60. Based on the information in the following table. B 58. C 29. C 9. A 60. C 54.Answers 1. D 37. D 56. C 50. C 39. D 47. C 2. D 19. C 32. C 4. A 36. D 30. E 40.doc 46. B 27. D 59. B 26. C 38. D 16. B 48. A 51. A 42. B 23. C 3. A 53. B 6. C 55. B 45. B 28. C 15. B 57. A 7. B 52. A 41. D 22. B 24. C 17. C 49. B 33. D 13. C 43. B 35. C 11. A . D 21. A 20. E 25. B 31. B 18. A 14. D 34. B 5. B 54066400. B 8. C 12. B 10. C 44.