AP Microeconomics : AP Microeconomics

Study concepts, example questions & explanations for AP Microeconomics

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Example Questions

Example Question #41 : Perfectly Competitive Markets

Assume the firm operates in the short-run. Use the following chart for questions 1-5:

 

Units

Total Revenue

Total cost

0

0

15

1

11

18

2

20

23

3

27

30

4

32

39

5

36

50

6

39

62

7

39

75

      Given the trend of total revenue schedule, which of the following statements best describes the behavior of the total revenue curve for this firm:

Possible Answers:

The total revenue curve will always increase but at a decreasing rate

The total revenue curve will increase indefinitely and constantly

Cannot tell the shape of the total revenue curve

The total revenue curve will increase initially, become flat, then decrease

The total revenue curve will initially increase, become flat, then increase

Correct answer:

The total revenue curve will increase initially, become flat, then decrease

Explanation:

The schedule shows that the marginal revenue is positive, but decreasing. As long as marginal revenue is greater than zero (MR>0) the total revenue will increase. When marginal revenue becomes zero (MR=0), total revenue will remain constant. When margina, revenue becomes less than zero (MR<0), total revenue will decrease. Diminishing returns, as well as the total revenue schedule, shows a continuous decrease of MR. We would expect, then, that TR would increase, become flat, then decrease.

Example Question #33 : Perfectly Competitive Output Markets

Assume the firm operates in the short-run. Use the following chart for questions 1-5:

 

Units

Total Revenue

Total cost

0

0

15

1

11

18

2

20

23

3

27

30

4

32

39

5

36

50

6

39

62

7

39

75

Suppose market factors have caused the firm to become the only supplier of widgets in the area, effectively giving the firm monopoly power. The most likely effect of this would be:

  1. The price of the good would rise
  2. The monopoly would price the good equal to marginal cost
  3. The quantity of the good would rise.

 

Possible Answers:

3 only

1 only

1, 2, and 3

1 and 2

2 only

Correct answer:

1 only

Explanation:

The monopolist would produce at the point where MR = MC. However, price is now derived from the consumer demand curve rather than being equal to MC. This is because a monopolist’s marginal revenue curve is steeper than the consumer demand curve. The resulting intersection causes monopolists to product a lower quantity of goods at a higher price. This price would exceed the marginal cost of production, allowing the monopolist to generate economic profit.

Example Question #71 : Ap Microeconomics

Suppose that the market for oranges exists at equilibrium such that the price of oranges is $3 and the quantity of oranges is 5. Orange growers lobby the government to impose a price floor of $5. Which of the following effects would occur?

Possible Answers:

Consumer surplus would increase

Dead weight loss would decrease

There would be a surplus of oranges

Producer surplus would decrease

There would be a shortage of oranges

Correct answer:

There would be a surplus of oranges

Explanation:

If the government imposes a price floor above the equilibrium price, the quantity of goods supplied would exceed the quantity of goods demanded (Qs > Qd) leading to a surplus. Consumer surplus would decrease and producer surplus would increase. We would also generate a dead weight loss (DWL) whereas before there was none, so DWL increases.

Example Question #31 : Perfectly Competitive Output Markets

Assume a market exists for Plobs, Clobs and Globs. When the price of Plobs increases, the price of Clobs increases. When the price of Plobs increases, the price of Globs decreases. Which of the following statements would support this behavior?

Possible Answers:

The demand for Plobs is inelastic

 Clobs and Globs and complements

Plobs and Globs are complements

Plobs and Clobs are substitutes

Plobs and Clobs are complements

Correct answer:

Plobs and Clobs are complements

Explanation:

f the price of Plobs increases and the price of Clobs increase, they must be complements. If the price of Plobs increases and the price of Globs decreases, they must be substitutes. We are not told anything about relative changes in quantity given a change in price, so we cannot determine elasticity. Clobs and Globs are not given a definitive relationship.

Example Question #42 : Perfectly Competitive Markets

Which of the following would NOT cause a shift in the demand curve for corn?

Possible Answers:

The price of wheat declines

The cost of fertilizer increases

The economy enters a growth phase and consumer incomes increase

Consumers anticipate a rise in the price of corn

A new widely read study shows that corn is healthy and should be incorporated into everyone’s diet.

Correct answer:

The cost of fertilizer increases

Explanation:

The rise in the cost of fertilizer represents a change in input prices, which is a determinant of supply, not demand. All other options represent determinants for demand.

Example Question #72 : Ap Microeconomics

The economy experiences slow growth and average incomes in the US decreases by 10%. As a result, the demand for widgets increases by 5%. Widgets are a:

Possible Answers:

Normal good

Bad

Luxury good

Necessary good

Inferior good

Correct answer:

Inferior good

Explanation:

If demand for widgets increases when incomes decrease, then the income elasticity for widgets is negative. This is because income elasticity is E = percent change in quantity/percent change in income. If E < 0 then the good is inferior.

Example Question #43 : Perfectly Competitive Markets

If the increase in the price of a good increases the demand for another good, then the two goods are:

Possible Answers:

normal goods

substitute goods

luxury goods

complementary goods

giffen goods

Correct answer:

substitute goods

Explanation:

Complementary goods typically replace one another in consumption. Thus, a decrease in demand for one good will typically increase the demand of the other good.

The question states that the price of one of the goods increased, which would lead to a decrease in its demand. If the demand of the other good increases as a result, than the two goods are likely to be substitute goods.

Example Question #44 : Perfectly Competitive Markets

Which of the following is a private good?

Possible Answers:

a candy bar

clean air

fish in the ocean

a movie theatre

a beach

Correct answer:

a candy bar

Explanation:

A private good is rival, which means that a person's consumption affects another person's consumption of the good, and excludable, which means that a person can prevent another person from consuming the good. Among the choices here, the only one that meets both criteria is the candy bar, which is both rival and excludable.

Example Question #75 : Ap Microeconomics

Sales tax is commonly labeled by economists as:

Possible Answers:

None of the other answers

Regressive tax

Progressive tax

Proportional tax

Excise tax

Correct answer:

Regressive tax

Explanation:

In terms of individual income and wealth, sales tax imposes a greater burden on the poor than the rich. One's consumption of taxable items typically does not increase as fast as one's income. Thus, lower-income individuals spend a larger portion of their income and wealth than higher-income individuals.

Example Question #76 : Ap Microeconomics

From the point of view of economic efficiency, monopolists:

Possible Answers:

Produce too much of a good and charge too low of a price.

Produce too much of a good and charge too high of a price.

Produce too little of a good and charge too high of a price.

Produce too little of a good and charge too low of a price.

Produce the optimal amount of a good and charge the optimal price.

Correct answer:

Produce too little of a good and charge too high of a price.

Explanation:

When not restricted by government or laws, monopolists will typically try to maximize their profit by producing fewer goods and selling them at higher prices than would be the case in a perfectly competitive market. The lack of competition allows them to charge higher prices without the threat of a competing firm driving down prices.  

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