AP Microeconomics : AP Microeconomics

Study concepts, example questions & explanations for AP Microeconomics

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Example Questions

Example Question #73 : Perfectly Competitive Output Markets

Which of these actions most obviously produces a negative externality?

Possible Answers:

Working as a software engineer

Farming sweet potatoes

Littering

Selling your old stuff online

Trashing your room

Correct answer:

Littering

Explanation:

Trashing your room really only affects you. Only littering, which affects the general public, is clearly a negative externality.

Example Question #73 : Perfectly Competitive Output Markets

Which of the following breakdowns in the rules of perfect competition is likely to result in a market externality?

Possible Answers:

Many sellers, one buyer

Firms sell differentiated, non-identical products

High entry and exit barriers

Poorly defined property rights

Increasing returns to scale in production

Correct answer:

Poorly defined property rights

Explanation:

Among the available choices, only poorly defined property rights is likely to result in an externality. For example, poorly defined intellectual property rights could result in firms not reaping the full benefit of their research and development and therefore doing less than is socially optimal.

Example Question #74 : Perfectly Competitive Output Markets

The following are characteristics of a perfectly competitive market. Among these, which is most clearly lacking in the market for used cars?

Possible Answers:

Factors of production are perfectly mobile in the long run

Lack of increasing returns to scale

Large number of buyers and sellers

Well defined property rights

Buyers and sellers have perfect information on the quality of the product

Correct answer:

Buyers and sellers have perfect information on the quality of the product

Explanation:

Although few real-life markets meet the characteristics of perfect competition exactly, the lack of perfect (or even equal) information about the goods being traded stands out in the used car market. When dealing in used cars, the seller typically has much more information about the quality of the car than the buyer.

The other answers more or less fit the perfect competition model. There are many buyers and sellers, the property rights of the buyer and seller are well defined, there are limited returns to scale (i.e. small used car sellers have not been competed out of existence), and factors of production (labor, land) can be put to other uses.

Example Question #81 : Perfectly Competitive Markets

Reference this chart for the question below:

Output

Total Cost ($)

1

10

2

15

3

19

4

24

5

30

6

38

7

49

The marginal cost of producing the 7th unit of output is:

Possible Answers:

Correct answer:

Explanation:

The total cost of producing 7 units is $49. Since the total cost of producing 6 units is $38, the marginal cost of producing the 7th unit must be $11.

Example Question #111 : Ap Microeconomics

The law of diminishing marginal utility explains:

Possible Answers:

law of comparative advantage

the diminishing marginal product of capital

law of demand

law of supply

law of inequality

Correct answer:

the diminishing marginal product of capital

Explanation:

The law of diminishing marginal utility states that the marginal value derived from a unit decreases as its use increases. This explains the phenomenon where the use of capital (its marginal product) decreases or diminishes as its utilization increases.

Example Question #112 : Ap Microeconomics

Which of the following is an example of a public good?

Possible Answers:

An online blog

None of the other answers

An eraser

A theme park

A book

Correct answer:

An online blog

Explanation:

A public good is both non-rival (a person's use does not prevent another person's use) and non-rivalrous (a person cannot be excluded from using it). The only good that fits this description is the online blog. 

Example Question #113 : Ap Microeconomics

An industry with a small number of firms (3-5) is considered to be: 

Possible Answers:

a perfect competition

a monopolistic competition

a duopoly

a monopoly

an oligopoly

Correct answer:

an oligopoly

Explanation:

A market or industry that is dominated by a small number of firms is called an oligopoly. By contrast, monopolies are dominated by one firm, duopolies are dominated by two firms, and perfectly competitive and monopolistically competitive industries have many firms competing with one another. 

Example Question #114 : Ap Microeconomics

The market for pizza is currently in equilibrium. If the demand for pizza rises while its supply falls, what can you say about the price and quantity of pizza in the market?

Possible Answers:

change in price and quantity is ambiguous

quantity rises but change in price is ambiguous

price and quantity both increase

price rises, change in quantity is ambiguous

price and quantity both decrease

Correct answer:

price rises, change in quantity is ambiguous

Explanation:

An increase in the demand for pizza will increase its price and quantity, while a decrease in the supply of pizza will increase its price and decrease its quantity. Thus, the price of pizza will unambiguously increase, but the quantity can either increase or decrease, depending on which change has the greater effect on supply.

Example Question #116 : Ap Microeconomics

The United States trades corn in exchange for maple syrup from Canada. If these nations are taking advantage of relative opportunity costs, what must be true?

Possible Answers:

The U.S. has an absolute advantage in maple syrup production, while Canada has an absolute advantage in corn production.

The U.S. has a comparative advantage in corn production, while Canada has a comparative advantage in maple syrup production.

The U.S. has an absolute advantage in both the production of maple syrup and corn.

The U.S. has a comparative advantage in maple syrup production, while Canada has a comparative advantage in corn production.

The U.S. has an absolute advantage in corn production, while Canada has an absolute advantage in maple syrup production.

Correct answer:

The U.S. has a comparative advantage in corn production, while Canada has a comparative advantage in maple syrup production.

Explanation:

When two countries trade two goods with one another, they will trade the goods that they have a comparative advantage in producing. One nation can have an absolute advantage in the production of both goods, but each nation will still have a comparative advantage in producing one of the two goods. 

Example Question #91 : Competition

In the long run, a monopolistically competitive firm will: 

Possible Answers:

become a monopoly

earn zero economic profit

become an oligopoly

earn positive economic profit

earn negative economic profit

Correct answer:

earn zero economic profit

Explanation:

Monopolistic competition is a situation where firms sell products that are differentiated from one another. In this situation, firms can behave like monopolies in the short run and earn positive economic profits. However, they will revert to making zero economic profit over the long run. 

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