Practice Test 2 - AP Microeconomics

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

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1. Based on the changes described, the price of coffee increases by 10% while the price of tea is unchanged. Over the same period, the quantity demanded of tea increases by 2%. What does this imply about the cross-price elasticity of demand (XED) for tea with respect to the price of coffee, and what does it indicate about the relationship between tea and coffee?
2. Consider a monopolistically competitive firm that is earning positive economic profits in the short run. If the government imposes a lump-sum tax, what will be the immediate effect on the firm's price and quantity?
3. If firms in a perfectly competitive industry are earning positive economic profits in the short run, which of the following will occur in the long run?
4. A market for table salt has many firms selling an identical product, and any firm that raises its price loses nearly all customers. A market for streaming music has a few large firms with differentiated platforms, and each platform can adjust subscription prices without losing all subscribers immediately. Based on the market characteristics described, which feature distinguishes imperfect competition in streaming music from perfect competition in table salt?
5. Based on the changes described, a consumer's income falls by 20%. Over the same period, the quantity of used clothing demanded falls by 10%. Using income elasticity of demand (YED) for used clothing, which statement is correct?
6. Based on the supply curves shown, producers adopt a new technology that reduces the time needed to produce each unit. Which change best matches the shift from S1 to S2?
7. Based on the changes described, the price of coffee is unchanged, but the quantity of tea demanded rises from 100 cups per day to 120 cups per day after the price of coffee rises by 10%. Using cross-price elasticity of demand (XED), are coffee and tea substitutes, complements, or unrelated goods?
8. A delivery company hires truck drivers in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (drivers) employed? Labor market table (wage per hour, $W$): - At $W = $22: $Q_D = 80$ drivers, $Q_S = 40$ drivers - At $W = $24: $Q_D = 70$ drivers, $Q_S = 50$ drivers - At $W = $26: $Q_D = 60$ drivers, $Q_S = 60$ drivers - At $W = $28: $Q_D = 50$ drivers, $Q_S = 70$ drivers - At $W = $30: $Q_D = 40$ drivers, $Q_S = 80$ drivers
9. Based on the constraints in the scenario, a start-up has one 3D printer available for 10 hours today and must allocate printing time between prototype parts and customer orders. The firm wants 7 hours for prototypes and 6 hours for orders, but only 10 hours are available. Which fundamental economic problem is illustrated?
10. A private company sells annual memberships to a streaming platform. Only paying members can access the content, and one person watching a movie does not reduce the ability of others to watch the same movie at the same time. Based on the characteristics described, which type of good is access to the streaming platform?
11. Income levels and poverty rates often vary significantly across different demographic groups within a single country. This fact suggests that...
12. A city has many independent bookstores that differentiate through atmosphere, curation, and events (monopolistic competition). A representative store earns short-run economic profit. Based on the monopolistically competitive firm's situation, which feature explains why long-run profit is zero? Time horizon: long run.
13. An AP Micro student lists characteristics of several markets. Market 1: many firms, identical product, easy entry, price takers. Market 2: one firm, no close substitutes, legal barriers to entry. Market 3: many firms, differentiated products, some price control, relatively easy entry. Based on the market characteristics described, which statement is true for all imperfectly competitive markets (Markets 2 and 3) compared with perfect competition (Market 1)?
14. Using the supply data shown for a wheat farm, calculate the price elasticity of supply (PES) between the two points using the midpoint method. Assume the time horizon is one growing season, so planted acreage is fixed but some additional effort and fertilizer can be applied. Points: from $P = $5.00, Q_s = 1,000$ bushels to $P = $6.00, Q_s = 1,100$ bushels.​
15. For a firm to successfully engage in price discrimination, which of the following conditions must be met?
16. Based on the payoff matrix below (profits in millions of dollars), which strategy is dominant for Firm A? Payoffs are listed as $(\text{Firm A},\ \text{Firm B})$. <table> <tr><th></th><th>Firm B: Offer Rebate</th><th>Firm B: No Rebate</th></tr> <tr><th>Firm A: Offer Rebate</th><td>(22, 22)</td><td>(30, 18)</td></tr> <tr><th>Firm A: No Rebate</th><td>(18, 30)</td><td>(26, 26)</td></tr> </table>
17. Based on the changes described, the cross-price elasticity of demand (XED) between coffee and tea can be inferred from the following: the price of coffee rises by 10%, and the quantity of tea demanded rises by 5%. Are coffee and tea substitutes, complements, or unrelated goods?
18. Based on the monopsonistic labor market shown in the table, a single commercial farm is the only employer of field workers in a remote valley. The farm faces an upward-sloping labor supply, so marginal factor cost (MFC) is greater than the wage. The table provides wage, MFC, and marginal revenue product (MRP). How many workers does the monopsonist hire and at what wage? Table: Remote Valley Farm Labor Market - Labor (workers): 1, 2, 3, 4, 5 - Wage ($ per worker): 9, 10, 11, 12, 13 - MFC ($): 9, 11, 13, 15, 17 - MRP ($): 16, 14, 12, 10, 8
19. A homeowner installs a motion-activated security light on their property. The light illuminates the street when triggered, and neighbors walking by also benefit from the extra visibility. Once the light is on, additional neighbors benefiting from it do not reduce the amount of light available to others, and it is difficult to prevent passersby from receiving the illumination. Based on the characteristics described, which type of good is the illumination provided by the security light?
20. Based on the supply curve shown, the market for reusable water bottles experiences a change from $S_1$ to $S_2$. Which change could have caused the shift shown? Determinant context: The price of stainless steel (an input) changes.

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