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Practice Test 5 - AP Microeconomics

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

  1. Based on the changes described, the price of Good M falls by 10% while the price of Good N is unchanged. Over the same period, the quantity demanded of Good N rises by 3%. What does this imply about the cross-price elasticity of demand (XED) for Good N with respect to the price of Good M, and what does it indicate about the relationship between the goods?
  2. Based on the supply curves shown for ride-share services, more drivers enter the market. Which change could have caused the shift from S1S_1 to S2S_2?
  3. A cable company is a monopolist in its service area and sells the same streaming package in two separate markets. Market A (seniors) has relatively inelastic demand, while Market B (college students) has relatively elastic demand. The company can verify age and enrollment and blocks account sharing across markets. Based on the monopolist's pricing strategy, which group is charged the higher price and why?
  4. A city compares two industries. In the restaurant industry, many firms operate, menus and experiences differ, and new restaurants can open. In the patented prescription drug industry, a single firm holds a patent for a specific drug, and no other firm may legally produce the same drug during the patent period. Based on the market characteristics described, which feature distinguishes the patented drug market from perfect competition?
  5. Based on the payoff matrix below (profits in millions of dollars), what is the Nash equilibrium of this game? Payoffs are listed as (Firm A, Firm B)(\text{Firm A},\ \text{Firm B}). <table> <tr><th></th><th>Firm B: High Price</th><th>Firm B: Low Price</th></tr> <tr><th>Firm A: High Price</th><td>(50, 50)</td><td>(10, 70)</td></tr> <tr><th>Firm A: Low Price</th><td>(70, 10)</td><td>(20, 20)</td></tr> </table>
  6. A firm's total revenue is maximized at a different quantity of output than its profit. This occurs because profit maximization considers
  7. Based on the constraints in the scenario, a student has 8 hours on Saturday to allocate between studying for a calculus exam and working a paid shift. The student wants to study 6 hours and work 6 hours, but only 8 hours are available. Which statement correctly explains why a choice must be made?
  8. Two producers, Producer A and Producer B, can each allocate a day to producing either Good X or Good Y. Based on the production data in the table (maximum output per day), if the producers specialize according to comparative advantage and then trade, which outcome is most likely?
    ProducerMax Good X per dayMax Good Y per day
    A105
    B66
  9. A city has two markets for bottled water. In Market X, there are hundreds of small firms selling identical bottled water, each firm can sell any quantity at the going market price, and firms can enter and exit freely. In Market Y, there are many firms selling bottled water with different branding and packaging, each firm faces a downward-sloping demand curve for its own brand, and entry is relatively easy but requires some advertising and shelf-space agreements. Based on the market characteristics described, which market structure best fits Market Y?
  10. Based on how resources are allocated in the scenario, which statement best explains how the for whom question is answered here? A rural community has scarce irrigation water. By custom, elders allocate weekly water turns to households based on family size and long-standing roles; farmers are expected to contribute labor to maintain canals (how production is organized). A nearby town instead sells water rights; the price of water rises until buyers' quantity demanded equals sellers' quantity supplied.
  11. The primary purpose of antitrust policy in a market economy is to
  12. In the market for registered nurses, a new outpatient surgery center opens in the city, increasing the demand for nursing services. Based on the labor market graph shown, what happens to the equilibrium wage (WW) and quantity of labor (LL) for registered nurses?
  13. A country faces a shortage of skilled electricians and copper wire, so it must decide WHAT to produce (new power lines versus other infrastructure), HOW to produce (which technologies and contractors), and FOR WHOM to produce (which neighborhoods get upgraded first). The government shifts the electricity sector from a state-run utility that sets uniform rates and assigns repair crews by central schedule to a system where multiple private firms compete, set prices, and can earn higher profits by restoring power faster. Based on how resources are allocated in the scenario, compared to the state-run approach, which incentive is stronger under the competitive private-firm approach?
  14. Two producers, Producer A and Producer B, can each allocate one day to producing either Good X or Good Y. Based on the production data in the table (maximum output per day), which producer has the comparative advantage in producing Good X?
    ProducerMax Good X per dayMax Good Y per day
    A510
    B88
  15. A music streaming service requires a paid subscription and password login. If many subscribers stream at the same time, the service adds server capacity so that one user's listening does not reduce audio quality for others. Based on the characteristics described, which type of good is access to the streaming service?
  16. Based on the changes described, a consumer's income falls by 10%, and the consumer's quantity demanded of generic (store-brand) cereal falls by 5%. This question tests income elasticity of demand (YED). Is generic cereal a normal good or an inferior good?
  17. A consumer is deciding how many premium app downloads to purchase. Each download costs $5. Based on the marginal utility and price information in the table, how many downloads should the consumer buy to maximize net benefit? Marginal Utility of App Downloads
    Download numberMU (utils)
    122
    218
    314
    410
    56
    64
  18. Using the supply data shown for a rideshare market in the long run (more drivers can enter and vehicles can be acquired), is supply elastic, inelastic, or unit elastic over the range from Point 1 to Point 2? Use the midpoint method. Supply data (per hour in a city): - Point 1: $P = $20, $QsQ_s = 200 - Point 2: $P = $30, $QsQ_s = 300
  19. Consider three markets. Market 1 is a local coffee-shop market with many sellers, differentiated drinks, and relatively easy entry. Market 2 is a city water utility served by a single provider with high fixed costs and government franchise protection. Market 3 is a farm crop market with many sellers and identical output. Based on the market characteristics described, which statement is true for all imperfectly competitive firms (Markets 1 and 2)?
  20. A university posts free lecture videos on a public website with no login requirement. Anyone with internet access can watch, and one person watching does not reduce the ability of others to watch the same video. Based on the characteristics described, which type of good is access to the lecture videos?

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