Practice Test 1 - AP Microeconomics

20 questions. Answer them in any order, then submit to see your score and every explanation.

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1. A new production process reduces unit costs. Based on the supply curves shown, which statement is consistent with the shift from S1 to S2?
2. The primary goal of cost-benefit analysis in public policy decisions is to
3. Peanut butter and jelly are considered complementary goods. If a new harvesting technique makes peanuts much cheaper to acquire, what will happen in the market for jelly?
4. A community's market for flu vaccinations is shown in the graph. Vaccination reduces disease transmission, creating a positive externality. Based on the externality shown in the graph, what is the socially optimal quantity of vaccinations?
5. Using the PPC shown, which statement is true about point A compared with point B?
6. A monopolist museum charges $5 admission for children (ages 6–17) and $20 admission for adults (ages 18+). The museum checks IDs at entry and does not allow ticket resale. Market research indicates adults have fewer close substitutes and therefore a less elastic demand than children. Based on the monopolist's pricing strategy, which group is charged the higher price and why?
7. A town has many coffee shops. Each shop sells coffee but differentiates through ambience, branding, and menu variety. New coffee shops can enter with modest startup costs, and each shop can raise price slightly without losing all customers. In contrast, a wheat market has many sellers of identical wheat and firms are price takers. Based on the market characteristics described, which market structure best fits the coffee shop market?
8. A corn farmer operates in a perfectly competitive market and can sell any quantity of corn at the prevailing market price of $4 per bushel. The demand curve faced by this individual farmer is
9. Based on the monopolistically competitive firm's situation, a small clothing brand sells differentiated T-shirts (unique designs). In the short run, it earns economic profit because at $Q^*$, price exceeds average total cost. In the long run, which feature explains why long-run profit is zero?
10. Producer surplus in a market is best described as the
11. A tax on gasoline is often considered regressive because...
12. A local utility company is a monopolist for electricity. It offers a two-part tariff: a monthly connection fee of $25 plus $0.10 per kilowatt-hour (kWh). All households face the same tariff, but households with higher willingness to pay for electricity tend to consume more kWh. Based on the monopolist's pricing strategy, which type of price discrimination is illustrated?
13. If a 10% increase in the price of a smartphone leads to a 20% decrease in the quantity demanded, the price elasticity of demand for smartphones is
14. The long-run average total cost curve is often depicted as U-shaped. The upward-sloping portion of this curve reflects
15. If government regulators require a natural monopoly to set its price equal to its marginal cost, the monopoly will likely...
16. A small call center produces resolved customer issues (single output) using labor as the variable input; its phone system and office space (capital) are fixed. Based on the production data shown, over which range of labor does the firm experience diminishing marginal returns? Table: Total Product (TP) of Resolved Issues

    Labor (L), workers	Total Product (TP), issues/hour
    0	0
    1	12
    2	27
    3	43
    4	58
    5	70
    6	79
    7	85

17. A coastal town has an open-access fishery where any boat can fish without a permit. Each additional boat catching fish reduces the number of fish available for other boats, especially during peak season. Based on the characteristics described, which type of good is this?
18. In the market for laptop computers, a decrease in demand is more than offset by a decrease in supply. Which of the following changes in equilibrium price and quantity is the most likely outcome?
19. A market for residential insulation services is shown in the graph. Better insulation reduces energy use and local air pollution, creating a positive externality. Based on the externality shown in the graph, what is the socially optimal quantity of insulation services?
20. In a city, independent hair salons offer differentiated services (branding, styling experience) and compete in monopolistic competition. In the short run, one salon earns economic profit at its $MR=MC$ output because $P>ATC$. Based on the monopolistically competitive firm's situation, which feature explains why long-run economic profit is zero (one year) for the typical salon?

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