Microeconomics Practice
Using past AP exam questions
1.
Which of the following best defines opportunity cost?
A)
It is the cost of producing those goods most desired by a given economy.
B)
It is the cost of the input mix that will lead to the greatest rate of growth for a given company.
C)
It is the amount of one product that must be given up in order to produce an additional unit of another product.
D)
It is the use of the least-cost method of production.
E)
It is the cost of labor used in the production process
4.
Assume that Clark spends his entire income on the purchase of two goods, X and Y. If his income and the prices of good X and Y all double, Clark will
A)
double the purchase of goods X and Y
B)
buy more of good X and less of good Y
C)
buy less of good X and more of good Y
D)
buy less of both goods X and Y
E)
buy the same amounts of goods X and Y
7.
A per-unit tax on pollution produced by a firm will affect the firm's output and pollution levels in which of the following ways?
A)
Output: Increase; Pollution: Increase
B)
Output: Increase; Pollution: Decrease
C)
Output: Decrease; Pollution: Increase
D)
Output: Decrease; Pollution: Decrease
E)
Output: No change; Pollution: No change
10.
If the production of a good generates a positive externality, the government can increase allocative efficiency by
A)
taxing the producer of the good
B)
subsidizing the producer of the good
C)
prosecuting firms that produce the good without proper permits
D)
setting a price ceiling to encourage production of the good
E)
setting a price floor to discourage production of the good
13.
Most economists argue that a monopoly is inefficient because it
A)
has no incentive to minimize its costs
B)
produces too little output and sets a price above marginal cost
C)
earns too much profit by charging consumers any price it wants
D)
produces too much output and thus wastes scarce resources
E)
usually produces unsafe products if not regulated by government
2.
Which of the following explains why a production possibilities curve is often represented as concave (bowed out) from the origin?
A)
The law of demand
B)
The law of supply
C)
It is the amount of one product that must be given up in order to produce an additional unit of another product.
D)
Decreasing opportunity cost
E)
Increasing opportunity cost
5.
In the short run, which of the following costs must continuously decrease as output produced increases?
A)
Total variable cost
B)
Total fixed cost
C)
Average variable cost
D)
Average fixed cost
E)
Average total cost
8.
According to the law of diminishing marginal utility, which of the following is true?
A)
Total satisfaction decreases as more units of a good are consumed.
B)
The additional satisfaction received from consuming extra units of a good decreases as consumption of the good increases.
C)
The additional satisfaction received from consuming extra units of a good decreases as consumption of the good decreases.
D)
The additional satisfaction received from consuming extra units of a good increases as consumption of the good increases.
E)
When marginal utility is decreasing, total utility is decreasing.
11.
Which of the following is the best example of a pure public good?
A)
Electricity from a public utility
B)
Mail delivery service by the post office
C)
Social Security payments
D)
National defense
E)
Imported oil
14.
If a firm's production process exhibits economies of scale, which of the following will occur when the firm's output increases?
A)
Its short-run average total costs will rise.
B)
Its long-run average total costs will rise.
C)
Its long-run average total costs will fall.
D)
Its short-run total costs will fall
E)
Its long-run total costs will fall.
3.
Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by
A)
increasing the demand for pretzels and therefore the supply of pretzels
B)
increasing the demand for pretzels and therefore the price of pretzels
C)
decreasing the demand for pretzels and therefore the price of pretzels
D)
increasing the supply of pretzels and therefore the price of pretzels
E)
decreasing the supply of pretzels and therefore the price of pretzels
6.
Which of the following statements about a constant-cost perfectly competitive industry in long-run equilibrium must be true?
A)
An increase in demand will cause no change in the long-run equilibrium price.
B)
An increase in demand will cause no change in the long-run equilibrium quantity.
C)
The long-run supply curve is upward sloping.
D)
The long-run supply curve is perfectly inelastic.
E)
The total cost of production remains the same as output increases.
9.
Instead of being employed at a printing company at a salary of $25,000 per year, Sally starts her own printing firm. Rather than renting a building that she owns to someone else for $10,000 per year, she uses it as the location for her company. Her costs for workers, materials, advertising, and energy during her first year are $125,000. If the total revenue from her printing company is $155,000, her total economic profit/loss is
A)
$5,000 loss
B)
$5,000 profit
C)
$20,000 profit
D)
$30,000 profit
E)
$120,000 profit
12.
Which of the following best describes an oligopolistic market?
A)
Many sellers with identical products and no barriers to entry
B)
Many sellers, each with a clearly differentiated product, and no barriers to entry
C)
A few competing sellers with similar products and high barriers to entry
D)
A few competing sellers of identical products and no barriers to entry
E)
No competition arong sellers and high barriers to entry
15.
Let P = price, MR = marginal revenue, MC = marginal cost, and ATC = average total cost. In monopolistic competition, which of the following most accurately describes the long-run equilibrium conditions for a firm?
A)
P > ATC, MR = MC, and P > MC
B)
P > ATC, MR > MC, and P = MC
C)
P = ATC, MR = MC, and P > MC
D)
P = ATC, MR = MC, and P = MC
E)
P = ATC, MR > MC, and P > MC
Question # | Correct Answer | Explanation | Unit |
|---|---|---|---|
1. | C | It's the value of the next best alternative given up when choosing something. | Unit 1: Basic Economic Concepts |
2. | E | Due to increasing opportunity cost, resources are not equally adaptable. | Unit 1: Basic Economic Concepts |
3. | B | Less popcorn shifts demand for pretzels right, raising pretzel price. | Unit 2: Supply and Demand |
4. | E | Relative prices and real income unchanged -> same consumption bundle. | Unit 1: Basic Economic Concepts |
5. | D | Average fixed cost falls as output increases (fixed cost is spread out). | Unit 3: Production, Cost, and the Perfect Competition Model |
6. | A | Price returns to original because costs don't change with output scale. | Unit 3: Production, Cost, and the Perfect Competition Model |
7. | D | Increases cost ? lower output and less pollution. | Unit 6: Market Failure and the Role of Government |
8. | B | Extra units yield less additional satisfaction. | Unit 1: Basic Economic Concepts |
9. | A | TR = 155k; Explicit + Implicit Costs = 160k -> -5k loss. | Unit 3: Production, Cost, and the Perfect Competition Model |
10. | B | Subsidies correct underproduction by increasing output. | Unit 6: Market Failure and the Role of Government |
11. | D | National defense is non-rival and non-excludable. | Unit 6: Market Failure and the Role of Government |
12. | C | Few sellers, similar goods, high entry barriers. | Unit 4: Imperfect Competition |
13. | B | Monopolies underproduce and overprice, causing allocative inefficiency. | Unit 4: Imperfect Competition |
14. | C | LRATC decreases as output increases due to cost efficiencies. | Unit 3: Production, Cost, and the Perfect Competition Model |
15. | C | Firms earn zero economic profit (P = ATC), but P > MC, so not allocatively efficient. | Unit 4: Imperfect Competition |
Graph Questions
1.
What is the price paid by consumers and the net price received by producers after the tax is paid?
A) Paid by Consumers: $11; Received by Producers: $10.45
B) Paid by Consumers: $11; Received by Producers: $10
C) Paid by Consumers: $10.45; Received by Producers: $10
D) Paid by Consumers: $10.45; Received by Producers: $9.45
2.
According to the diagram, what is the dollar amount of the unit tax?
A) $0
B) $0.45
C) $0.55
D) $1.00
E) $1.45
E) Paid by Consumers: $10; Received by Producers: $9.45
3. The profit-maximizing firm depicted in the graph should
A) exit if conditions do not improve in the
long-run
B) produce the output that minimizes average total cost
C) increase price to maximize profits
D) increase output to maximize profits
E) use less capital and more labor to reduce cost
5.
According to the information in the table, which of the following statements is true if both countries have the same number of workers?
A) Country A has both an absolute advantage and a comparative advantage in manufactured goods
B) Country A has an absolute advantage in
manufactured goods but a comparative advantage in service goods
C) Country B has a comparative advantage in service goods but no absolute advantage in either good
D) Country A has an absolute advantage in service goods but a comparative advantage in manufactured goods​
​​​E) Country B has an absolute advantage in manufactured goods, but without more information, it is not possible to tell in which product it has a comparative advantage
4. If the average variable cost of producing 5 units of a good is $100 and the average variable cost of producing 6 units is $150, then the marginal cost of increasing output from 5 to 6 units is
A) $50
B) $250
C) $300
D) $400
E) $500
6.
The payoff matrix above shows the per-unit profits associated with the production strategies of two utility companies, UA and UB. Each firm has two choices: to reduce production by 10 percent or by 20 percent. The first entry in each cell indicates the profits to UA, and the second, the profits to UB.
A) Neither company has a dominant strategy.
B) Both companies have an incentive to reduce production by 10%
C) Both companies have an incentive to reduce production by 20%.
D) Only UA has an incentive to reduce production by 20%.
E) Only UB has an incentive to reduce production by 20%.
Answers:
1. D
2. D
3. A
4. D
5. B
6. B