AP Microeconomics : Perfectly Competitive Output Markets

Study concepts, example questions & explanations for AP Microeconomics

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Example Questions

Example Question #81 : Perfectly Competitive Output Markets

The law of diminishing marginal utility explains:

Possible Answers:

law of comparative advantage

law of inequality

law of supply

the diminishing marginal product of capital

law of demand

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 #82 : Perfectly Competitive Output Markets

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

Possible Answers:

None of the other answers

An eraser

A book

A theme park

An online blog

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 #83 : Perfectly Competitive Output Markets

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

Possible Answers:

a monopolistic competition

a monopoly

an oligopoly

a perfect competition

a duopoly

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 #84 : Perfectly Competitive Output Markets

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:

price and quantity both decrease

price and quantity both increase

price rises, change in quantity is ambiguous

quantity rises but change in price is ambiguous

change in price and quantity is ambiguous

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 #85 : Perfectly Competitive Output Markets

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 both the production of maple syrup and corn.

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 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.

The U.S. has a comparative advantage in corn production, while Canada has a comparative 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 #86 : Perfectly Competitive Output Markets

In the long run, a monopolistically competitive firm will: 

Possible Answers:

earn positive economic profit

become an oligopoly

earn negative economic profit

earn zero economic profit

become a monopoly

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. 

Example Question #121 : Ap Microeconomics

Patents, limiting the number of licenses available, and economies of scale are all examples of:

Possible Answers:

barriers to entry

None of the other answers are correct.

sources of demand

factors of production

sources of supply

Correct answer:

barriers to entry

Explanation:

Patents, limiting the number of licenses available, and economies of scale can all hinder a firm's ability to enter the market. A patent prevents a firm from replicating a product that originated from another firm. A limited number of licenses can exclude firms who are unable to obtain licenses from entering the market. Economies of scale can prevent smaller firms from entering the market by making such an action cost-prohibitive. 

Example Question #121 : Ap Microeconomics

Labor, capital, human capital, and natural resources are all examples of: 

Possible Answers:

None of the other answers are correct.

barriers to entry

sources of demand

sources of supply

factors of production

Correct answer:

factors of production

Explanation:

All of these are examples of factors of production, which are the inputs necessary for a production process. 

Example Question #122 : Ap Microeconomics

A consumer's indifference curves for two different goods will be a straight lines when:

Possible Answers:

Both goods are perfect compliments

The prices of the two goods are equal

Utility is maximized

None of the other answers are correct.

Both goods are perfect substitutes

Correct answer:

Both goods are perfect substitutes

Explanation:

When both goods are perfect substitutes, the consumer is indifferent between the amount of consumption of the two goods. Thus, his/her indifference curves will be straight lines, because the rate of substitution between the two goods will be constant. 

Example Question #95 : Perfectly Competitive Markets

Which of the following market structures is characterized by low barriers to entry, homogeneous products, and a large number of firms?

Possible Answers:

Oligopoly

Perfect Competition

Monopolistic Competition

Monopoly

Correct answer:

Perfect Competition

Explanation:

In perfectly competitive markets, there are low barriers to entry (think of a food truck--all one needs in order to operate are a truck, fuel, cooking equipment, and a business license), homoegenous products (consider a farm--nearly all cucumbers are identical to one another), and a large number of firms (this is what makes the environment so competitive).

In monopolistic competition and oligopolies, products tend to be heterogeneous, and in a monopoly, there are extremely high barriers to entry.

 

 

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