AP Econ 1995 Exam

question

The allocation of resources in a market economy is described by which of the following statements?

answer

E: II and III (II: Buyers and sellers exchange goods and services on a voluntary basis, III: Prices and costs help producers decide whether they are producing too little or too much of a good)

question

If the government imposes a tax on the production of cars, which of the following will occur in the market for cars?

answer

D: The supply curve will shift to the left.

question

Which of the following is true of a price floor?

answer

A: The intention of the government in creating the price floor is to assist the producers of the good.

question

On the basis of the graph above, which of the following statements concerning changes in the demand for and supply of tomatoes is correct?

answer

E: If the demand increases while the supply decreases, the price of tomatoes will definitely increase.

question

Which of the following best illustrates the concept of consumer surplus?

answer

A: A thirsty athlete pays $0.85 for a cold drink when she would have gladly paid $1.50 for the drink.

question

The average total cost to the firm of producing two units of output is:

answer

C: $95.00

question

If the product price is $85, how many units of output must the firm produce in order to maximize profits?

answer

D: 5

question

Which of the following factors can cause a firm's cost curves to shift upwards?

answer

A: An increase in wages.

question

The diagram above shows a perfectly competitive firm's short-run cost curves. If the price of the output increases from $8 to $10, the profit-maximizing firm will:

answer

D: Increase output to 20 units because this is the output at which average variable cost is at a minimum.

question

Which of the following statements is true about a firm that sells its output in a perfectly competitive market?

answer

B: The firm will earn zero economic profits in long run equilibrium.

question

One justification for government regulation of a monopoly is that the unregulated monopoly:

answer

D: Charges a price higher than a competitive market price.

question

Which of the following is most likely to shift the demand for aircraft mechanics to the right?

answer

A: An increase in the demand for air travel.

question

The graph above shows the marginal revenue product curve and supply curve of labor for a firm. The introduction of new management techniques dramatically increases worker productivity. Which of the following changes is most likely to occur?

answer

C: The marginal revenue product curve will shift to the right, increasing the wage rate.

question

If the production of a good results in a positive externality, the government might be able to improve economic efficiency in this market by

answer

E: Granting a subsidy to private producers.

question

All of the following are sources of inequality in the distribution of personal income EXCEPT:

answer

A: Progressive income taxes.

question

An outward shift in the production possibilities curve of an economy can be caused by an increase in

answer

B: The labor force.

question

The graph above shows an economy's production possibilities frontier for the production of two goods, X and Y. Assume that the economy is currently at point B. The opportunity cost of moving from point B to point C is:

answer

B: HG units of good Y.

question

If the demand for potatoes increases whenever a person's income increases, then potatoes are an example of:

answer

D: A normal good.

question

The American Heart Association has just issued a report warning consumers about the negative health effects of eating beef. Which of the following changes in the beef market is most likely to occur as a result?

answer

B: The demand curve will shift to the left, decreasing the price of beef.

question

Which of the following is most likely to increase the supply of soldiers for an all-volunteer army?

answer

B: A decrease in the average wage rate in civilian employment.

question

If the increase in the price of one good decreases the demand for another, then the two goods are:

answer

E: Complementary goods.

question

Which of the following is true about a firm's average variable cost?

answer

E: It will equal average total cost when fixed costs are zero.

question

At a market price of $6, the profit-maximizing rate of output will result in:

answer

C: Normal profits.

question

If the market price is $10, how many widgets should this profit-maximizing firm produce?

answer

D: 16,000

question

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

answer

E: The firm's marginal costs will increase at each level of output.

question

Given the cost and demand schedules depicted above, if the firm increased output from q1 to q2, it would:

answer

C: Experience a decline in profits.

question

Which of the following are characteristics of a perfectly competitive industry?

answer

A: I and II only (I: New firms can enter the industry easily, II: There is no product differentiation)

question

The profit-maximizing output level produced by an unregulated monopoly is:

answer

D: Less than the socially optimal level, since the firm makes economic profits.

question

The wage rate is $10 per hour and the last worker hired by the firm increased output by 100 units. Computers rent for $100 per hour and the last computer rented by the firm increased output by 2,000 units. To minimize costs the firm should:

answer

C: Lay off workers and rent more computers because computers produce more output per dollar of additional expenditure.

question

Imposing taxes that increase a firm's pollution increases is often recommended by economists as a means to reduce pollution. The reason for this recommendation is that such taxes would likely:

answer

B: Encourage firms to use the most efficient method to reduce pollution.

question

The opportunity cost of owning a business is equal to which of the following?

answer

C: III only (III: The profits that could be earned in another business using the same amount of resources)

question

The graph above shows the supply and demand curves for a particular brand of computers. In 1998, 10,000 computers were sold for $1,000 each, but in 1989, 9,000 computers were sold for $1,000 each. Which of the following changes in the supply and demand curves could most likely have caused this change?

answer

D: Demand curve: Shift left, Supply curve: shift left.

question

If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the effect on their wage and employment?

answer

C: Wage: Increase, Employment: Decrease

question

If a store raises its prices by 20 percent and its total revenue increases by 10 percent, the demand it faces in this price range must be:

answer

A: Inelastic

question

In which of the following market structures is it sometimes assumed that rival firms will match price decreases but not match price increases?

answer

B: Oligopoly

question

A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should:

answer

E: Continue to produce only if the new price covers average variable costs.

question

Which of the following is true if a perfectly competitive market is in long-run equilibrium?

answer

C: Marginal revenue is equal to average total cost.

question

The table above shows the various units of output that can be produced with different combinations of capital and labor. Which of the following statements is correct according to the information in the table?

answer

A: In the long run, there are constant returns to scale.

question

The graph above shows a firm's cost and revenue curves. This profit-maximizing firm will:

answer

B: Charge a higher price than that necessary to maximize revenues.

question

Which of the following is necessarily true of the profit-maximizing equilibrium of a monopolist who sets a single price?

answer

B: Price is greater than marginal cost.

question

Given the production information in the table above, how many workers would be employed if the wage rate were $20.00 per day and if sandwiches sold for $0.50?

answer

C: 4

question

Which of the following is true when the production of a good results in negative externalities?

answer

C: The private market price will be too low.

question

In the long run, a monopolistically competitive firm is allocatively inefficient because the firm will:

answer

C: Charge a price greater than the marginal cost.

question

A change in which of the following will NOT cause a shift in the demand curve for a factor of production?

answer

D: Supply of the factor.

question

There are negative externalities associated with the use of a freeway in a major city at rush hour because during this time:

answer

A: Drivers slow down other drivers because of the high traffic volume.

question

Economic growth can be depicted using a production possibilities curve by which of the following?

answer

A: A rightward shift of the curve.

question

If a one-of-a-kind Etruscan vase is offered for sale at an auction, which, if any, of the following correctly shows the supply curve for the vase?

answer

A: (graph, vertical line)

question

Which of the following will cause an unregulated monopolist to produce a more allocatively efficient level of output?

answer

D: A subsidy that increases as output increases.

question

The graph above shows the cost and revenue curves for a natural monopoly. Consider the following two policies for regulating this natural monopoly.

answer

E: Policy 1 might require a payment of a subsidy to the firm.

question

Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?

answer

E: There is a price floor on the product.

question

According to the theory of consumer behavior, which of the following decreases first as additional units of a product are consumed?

answer

C: Marginal utility.

question

Under which of the following circumstances is a firm experiencing economies of scale?

answer

B: The firm doubles its inputs, and output triples.

question

Which of the following statements about cost is always true for both monopolies and perfectly competitive firms?

answer

A: Average total cost equals marginal cost when average total cost is a minimum.

question

The graph above depicts cost and revenue curves for a typical firm in a monopolistically competitive industry. Suppose that the firm is producing 0M units of output. To maximize profits, it should do which of the following to output and price?

answer

C: Output: Decrease, Price: Increase.

question

In most cases the supply curve for a perfectly competitive industry can be described as which of the following?

answer

B: More elastic in the long run than in the short run.

question

Compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient because they:

answer

C: Restrict their output level to maximize profits.

question

Which of the following is NOT a characteristic of monopolistically competitive markets?

answer

E: Long-run economic profits.

question

Which of the following will happen in the labor market if the price of the good produced by the workers decreases?

answer

D: The marginal revenue product of labor will decrease.

question

Assume that a firm is hiring labor in a perfectly competitive labor market. If the marginal revenue product of labor is grater than the wage rate, which of the following will be true?

answer

B: The firm should employ more workers.

question

Which of the following is true of the marginal cost of providing a pure public good to one more consumer?

answer

B: It is equal to zero.

1 of 60

question

The allocation of resources in a market economy is described by which of the following statements?

answer

E: II and III (II: Buyers and sellers exchange goods and services on a voluntary basis, III: Prices and costs help producers decide whether they are producing too little or too much of a good)

question

If the government imposes a tax on the production of cars, which of the following will occur in the market for cars?

answer

D: The supply curve will shift to the left.

question

Which of the following is true of a price floor?

answer

A: The intention of the government in creating the price floor is to assist the producers of the good.

question

On the basis of the graph above, which of the following statements concerning changes in the demand for and supply of tomatoes is correct?

answer

E: If the demand increases while the supply decreases, the price of tomatoes will definitely increase.

question

Which of the following best illustrates the concept of consumer surplus?

answer

A: A thirsty athlete pays $0.85 for a cold drink when she would have gladly paid $1.50 for the drink.

question

The average total cost to the firm of producing two units of output is:

answer

C: $95.00

question

If the product price is $85, how many units of output must the firm produce in order to maximize profits?

answer

D: 5

question

Which of the following factors can cause a firm's cost curves to shift upwards?

answer

A: An increase in wages.

question

The diagram above shows a perfectly competitive firm's short-run cost curves. If the price of the output increases from $8 to $10, the profit-maximizing firm will:

answer

D: Increase output to 20 units because this is the output at which average variable cost is at a minimum.

question

Which of the following statements is true about a firm that sells its output in a perfectly competitive market?

answer

B: The firm will earn zero economic profits in long run equilibrium.

question

One justification for government regulation of a monopoly is that the unregulated monopoly:

answer

D: Charges a price higher than a competitive market price.

question

Which of the following is most likely to shift the demand for aircraft mechanics to the right?

answer

A: An increase in the demand for air travel.

question

answer

C: The marginal revenue product curve will shift to the right, increasing the wage rate.

question

If the production of a good results in a positive externality, the government might be able to improve economic efficiency in this market by

answer

E: Granting a subsidy to private producers.

question

All of the following are sources of inequality in the distribution of personal income EXCEPT:

answer

A: Progressive income taxes.

question

An outward shift in the production possibilities curve of an economy can be caused by an increase in

answer

B: The labor force.

question

answer

B: HG units of good Y.

question

If the demand for potatoes increases whenever a person's income increases, then potatoes are an example of:

answer

D: A normal good.

question

answer

B: The demand curve will shift to the left, decreasing the price of beef.

question

Which of the following is most likely to increase the supply of soldiers for an all-volunteer army?

answer

B: A decrease in the average wage rate in civilian employment.

question

If the increase in the price of one good decreases the demand for another, then the two goods are:

answer

E: Complementary goods.

question

Which of the following is true about a firm's average variable cost?

answer

E: It will equal average total cost when fixed costs are zero.

question

At a market price of $6, the profit-maximizing rate of output will result in:

answer

C: Normal profits.

question

If the market price is $10, how many widgets should this profit-maximizing firm produce?

answer

D: 16,000

question

A competitive firm produces a product using labor and plastic. The firm is initially in equilibrium. If the cost of plastic suddenly increases, which of the following will occur?

answer

E: The firm's marginal costs will increase at each level of output.

question

Given the cost and demand schedules depicted above, if the firm increased output from q1 to q2, it would:

answer

C: Experience a decline in profits.

question

Which of the following are characteristics of a perfectly competitive industry?

answer

A: I and II only (I: New firms can enter the industry easily, II: There is no product differentiation)

question

The profit-maximizing output level produced by an unregulated monopoly is:

answer

D: Less than the socially optimal level, since the firm makes economic profits.

question

answer

C: Lay off workers and rent more computers because computers produce more output per dollar of additional expenditure.

question

Imposing taxes that increase a firm's pollution increases is often recommended by economists as a means to reduce pollution. The reason for this recommendation is that such taxes would likely:

answer

B: Encourage firms to use the most efficient method to reduce pollution.

question

The opportunity cost of owning a business is equal to which of the following?

answer

C: III only (III: The profits that could be earned in another business using the same amount of resources)

question

answer

D: Demand curve: Shift left, Supply curve: shift left.

question

If the minimum wage for teenagers increased to a rate higher than their market equilibrium wage, what would be the effect on their wage and employment?

answer

C: Wage: Increase, Employment: Decrease

question

If a store raises its prices by 20 percent and its total revenue increases by 10 percent, the demand it faces in this price range must be:

answer

A: Inelastic

question

In which of the following market structures is it sometimes assumed that rival firms will match price decreases but not match price increases?

answer

B: Oligopoly

question

A farmer produces peppers in a perfectly competitive market. If the price falls, in the short run the farmer should:

answer

E: Continue to produce only if the new price covers average variable costs.

question

Which of the following is true if a perfectly competitive market is in long-run equilibrium?

answer

C: Marginal revenue is equal to average total cost.

question

answer

A: In the long run, there are constant returns to scale.

question

The graph above shows a firm's cost and revenue curves. This profit-maximizing firm will:

answer

B: Charge a higher price than that necessary to maximize revenues.

question

Which of the following is necessarily true of the profit-maximizing equilibrium of a monopolist who sets a single price?

answer

B: Price is greater than marginal cost.

question

Given the production information in the table above, how many workers would be employed if the wage rate were $20.00 per day and if sandwiches sold for $0.50?

answer

C: 4

question

Which of the following is true when the production of a good results in negative externalities?

answer

C: The private market price will be too low.

question

In the long run, a monopolistically competitive firm is allocatively inefficient because the firm will:

answer

C: Charge a price greater than the marginal cost.

question

A change in which of the following will NOT cause a shift in the demand curve for a factor of production?

answer

D: Supply of the factor.

question

There are negative externalities associated with the use of a freeway in a major city at rush hour because during this time:

answer

A: Drivers slow down other drivers because of the high traffic volume.

question

Economic growth can be depicted using a production possibilities curve by which of the following?

answer

A: A rightward shift of the curve.

question

If a one-of-a-kind Etruscan vase is offered for sale at an auction, which, if any, of the following correctly shows the supply curve for the vase?

answer

A: (graph, vertical line)

question

Which of the following will cause an unregulated monopolist to produce a more allocatively efficient level of output?

answer

D: A subsidy that increases as output increases.

question

The graph above shows the cost and revenue curves for a natural monopoly. Consider the following two policies for regulating this natural monopoly.

answer

E: Policy 1 might require a payment of a subsidy to the firm.

question

Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?

answer

E: There is a price floor on the product.

question

According to the theory of consumer behavior, which of the following decreases first as additional units of a product are consumed?

answer

C: Marginal utility.

question

Under which of the following circumstances is a firm experiencing economies of scale?

answer

B: The firm doubles its inputs, and output triples.

question

Which of the following statements about cost is always true for both monopolies and perfectly competitive firms?

answer

A: Average total cost equals marginal cost when average total cost is a minimum.

question

answer

C: Output: Decrease, Price: Increase.

question

In most cases the supply curve for a perfectly competitive industry can be described as which of the following?

answer

B: More elastic in the long run than in the short run.

question

Compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient because they:

answer

C: Restrict their output level to maximize profits.

question

Which of the following is NOT a characteristic of monopolistically competitive markets?

answer

E: Long-run economic profits.

question

Which of the following will happen in the labor market if the price of the good produced by the workers decreases?

answer

D: The marginal revenue product of labor will decrease.

question

Assume that a firm is hiring labor in a perfectly competitive labor market. If the marginal revenue product of labor is grater than the wage rate, which of the following will be true?

answer

B: The firm should employ more workers.

question

Which of the following is true of the marginal cost of providing a pure public good to one more consumer?

answer

B: It is equal to zero.

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AP Econ 1995 Exam

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