Practice Test 9 - AP Microeconomics
20 questions. Answer them in any order, then submit to see your score and every explanation.
- Based on the constraints in the scenario, a household has a monthly budget of $120 for entertainment. The household wants to buy movie tickets and also subscribe to a streaming service, but the combined spending cannot exceed $120, and the household would prefer more of both. The situation best demonstrates that…
- A city has many small restaurants selling differentiated cuisine styles, consistent with monopolistic competition. In the short run, a representative restaurant earns economic profit at its output. Based on the monopolistically competitive firm's situation, what happens to profit in the long run (after new restaurants enter)?
- Along a downward-sloping, linear demand curve, the price elasticity of demand varies, while the slope of the curve is constant. This is because elasticity
- Based on the changes described, the income elasticity of demand (YED) for instant noodles can be inferred from the following: when household income falls from $3,000 per month to $2,700 per month, quantity demanded rises from 20 to 24 packs per month. Is instant noodles a normal good or an inferior good?
- Based on the income distribution shown, Metro Area R reports the following shares of total annual income by quintile: Bottom 20% = 3%, Second 20% = 9%, Middle 20% = 15%, Fourth 20% = 23%, Top 20% = 50%. Metro Area S reports: Bottom 20% = 6%, Second 20% = 11%, Middle 20% = 16%, Fourth 20% = 22%, Top 20% = 45%. Which distribution shows greater income inequality?
- A local market for specialty cupcakes is monopolistically competitive: each bakery sells a differentiated product. In the short run, SweetCrumb chooses the profit-maximizing output where and charges $6 per cupcake. At that quantity, $5 per cupcake, so SweetCrumb earns positive economic profit in the short run. Based on the monopolistically competitive firm's situation, what happens to SweetCrumb's economic profit in the long run if market conditions remain otherwise unchanged? Time horizon: long run.
- A small bakery produces loaves of bread per hour using labor (bakers) as the variable input, while the number of ovens is fixed. Based on the production data shown in the table, over which range of labor does the firm experience diminishing marginal returns? <table> <tr><th>Labor (L)</th><th>Total Product (TP), loaves/hour</th></tr> <tr><td>0</td><td>0</td></tr> <tr><td>1</td><td>8</td></tr> <tr><td>2</td><td>18</td></tr> <tr><td>3</td><td>30</td></tr> <tr><td>4</td><td>40</td></tr> <tr><td>5</td><td>47</td></tr> <tr><td>6</td><td>52</td></tr> <tr><td>7</td><td>55</td></tr> </table>
- Two workers, Producer A and Producer B, can each produce either Good X or Good Y in a day. Based on the production data in the table (maximum output per day), which producer has the comparative advantage in producing Good Y?
Producer Max Good X per day Max Good Y per day A 9 3 B 6 4 - Market M (a single toll bridge) is operated by one firm with government permission; entry by competing bridges is restricted; and the firm can raise the toll and still keep some customers. Market N (a common agricultural commodity) has many sellers of identical output and firms are price takers. Based on the market characteristics described, which feature distinguishes imperfect competition in Market M from perfect competition in Market N?
- The existence of scarcity is the reason that
- In the market for software engineers, a new AI coding tool increases each engineer's productivity. Based on the labor market graph shown, what happens to the equilibrium wage () and quantity of labor () for software engineers?
- Based on the PPC shown, which statement is true about point D?
- Two markets are compared. In Market A, each firm sells an identical product and must accept the market price. In Market B, each firm sells a differentiated product and can raise price without losing all customers, though quantity demanded falls. Based on the market characteristics described, which feature distinguishes imperfect competition in Market B from perfect competition in Market A?
- Based on the firm's cost and price information, should the firm produce or shut down in the short run? Assume the firm is a price taker in a perfectly competitive market and the market price is per unit. At the profit-maximizing output, the firm has total revenue of $400, total variable cost of $420, and total fixed cost of $60.
- In the market for bicycles, demand increases by a large amount while supply simultaneously increases by a small amount. The equilibrium price and quantity will most likely change in which of the following ways?
- A perfectly competitive firm faces a market price of per unit. At the firm's profit-maximizing quantity, and . Based on the firm's cost and price information, should the firm produce or shut down in the short run?
- A drought makes fresh water scarce, forcing a city to decide WHAT to produce (water for households versus for lawns and car washes), HOW to produce (new wells, recycling, or conservation), and FOR WHOM to produce (which users get water). Under Policy X, the city keeps the water price at $1 per 1,000 gallons (below the market-clearing price) and limits purchases to 5,000 gallons per household per month using coupons. Under Policy Y, the city allows the price to rise until quantity demanded equals quantity supplied, with no coupons. Based on how resources are allocated in the scenario, which outcome is most likely under Policy X?
- Based on the PPC shown, which point would require economic growth (an outward shift of the PPC) to become attainable?
- Consumer surplus is defined as the
- A monopolistically competitive firm, BrightBites Bakery, sells a differentiated product (gluten-free cupcakes). In the short run, it earns economic profit because at the profit-maximizing output where . Based on the monopolistically competitive firm's situation, what happens to profit in the long run (after enough time for entry or exit)?