ap_micro_economics_2005_mc
MICROECONOMICS
Section I
Time?70minutes
60questions
Directions:Each of the questions or incomplete statements below is followed by?ve suggested answers or comple-tions.Select the one that is best in each case and then?ll in the corresponding oval on the answer sheet.
1.A professor hires two aides,assigning them the
tasks of reading student papers and of typing lec-ture notes on a computer.One of the aides,Ben, can read1page of a student paper per minute or type50words of1lecture notes per minute,and the other aide,Ann,can read3pages of a student paper per minute or type60words of lecture notes per minute.
Which of the following statements is true?
A.Ann has a comparative advantage in
reading student papers,and Ben has a
comparative advantage in typing lecture
notes.
B.Ann has an absolute advantage in read-
ing student papers,and Ben has an ab-
solute advantage in typing lecture notes.
C.Ben has a comparative advantage in
reading student papers,and Ann has a
comparative advantage in typing lecture
notes.
D.Ben has a comparative advantage in both
reading student papers and typing lec-
ture notes.
E.Ben has an absolute advantage in both
reading student
papers and typing lec-ture notes.2According to the graph above,if a country is cur-rently producing at point X,the opportunity cost of producing another consumer good is
A.20capital goods
B.more than20capital goods
C.fewer than20capital goods
D.20consumer goods
E.fewer than20consumer goods
3To alleviate a?nancial crisis,a university increases student fees.This action will increase university revenues if the price elasticity of demand for uni-versity education is
A.inelastic
B.unit elastic
C.elastic
D.equal to the price elasticity of supply
E.equal to one
4Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?
A.The quantity sold will exceed the equi-
librium quantity.
B.Firm’s total revenues will increase if de-
mand is price elastic.
C.There will be a shortage in the market
D.All?rm’s will shut down,since price is
below the equilibrium price.
E.Price will exceed the marginal cost of
producing the last unit sold.
5Which of the following will decrease the demand for beef?
A.An increase in the price of pork,if pork
and beef are substitute goods
B.An increase in the price of potatoes,
if potatoes and beef are complementary
goods
C.A decrease in the cost of transporting
beef to consumers
D.An increase in the income levels of most
consumers,if beef is a normal good
E.Research showing beef is better for your
health than chicken
6If the price of a?rm’s variable input increases, which of the following will occur?
A.The?rm will decrease its level of produc-
tion.
B.The price of the god will decrease in the
short run.
C.The?rm’s marginal costs will decrease
at every level of output.
D.The?rm’s average?xed cost will de-
crease.
E.More?rms will enter the industry in the
long run.7In a given time period,a person consumes more and more of a good or service and,as a result, enjoys each additional unit less and is willing to pay less for each additional unit.This behavior is consistent with the law of
A.diminishing returns
B.diminishing marginal product
C.diminishing marginal utility
D.increasing costs
E.scarce resources
8Which of the following best describes the relation-ship between the average total cost curve and the marginal cost curve in the shown?
A.If the average total cost curve is rising,
the marginal cost curve is above the av-
erage total cost curve.
B.If the average total cost curve is rising,
the marginal cost curve is below the av-
erage total cost curve.
C.If the average total cost curve is above
the marginal cost curve,the marginal
cost curve is rising.
D.If the average total cost curve is below
the marginal cost curve,the marginal
cost curve is falling.
E.If the average and marginal cost curve
intersect,the I marginal cost curve is at
a minimum
9One characteristic of perfectly competitive markets is that individual?rms
A.engage in product di?erentiation
B.are free to enter or exit an industry in
the long run
C.earn positive economics pro?ts in the
long run
D.advertise to increase market share
E.face a downward-sloping demand curve
10At the current production level of good X,price is greater than marginal cost.Which of the following actions would lead to greater e?ciency?
A.Decreasing the production of good X
B.Increasing the production of good X
C.maintaining the current level of produc-
tion of good X
D.Imposing a tax on the production of good
X
E.Imposing an e?ective price?oor on good
X
11Which of the following is true of a monopo1istically competitive?rm in long-run equilibrium?
A.price greater than marginal cost,and
marginal revenue is equal to average to-
tal cost.
B.price is greater than marginal revenue,
and marginal cost is equal to average to-
tal cost.
C.Price is greater than marginal revenue,
and marginal cost is greater than aver-
age tota1cost.
D.Marginal revenue is equal to marginal
cost,and price is equal to average total
cost.
E.Marginal revenue greater than marginal
cost and price is equal to average total
cost.
12Generally,monopolies are considered ine?cient be-cause they
A.produce at a point where marginal cost
is less than marginal revenue
B.produce at a point where marginal cost
exceeds price
C.produce more output than does a com-
petitive industry with similar cost condi-
tions
D.lead to an overallocation of resources in
the a?ected market
E.lead to an underallocation of resources in
the a?ected market 13A pro?t-maximizing?rm that sells its output in a perfectly competitive market hires two additional workers,calculating that the contribution to total revenue of the last worker hired just equals the ex-tra cost of hiring that worker.Six months later, the?rm’s?nds that the last workers contribution to total revenue is less than the extra cost of hir-ing that worker.Which of the following mat have occurred in the interim to explain this change?
A.The?rm laid o?some workers.
B.The market supply for the?rm’s product
decreased.
C.The market demand for the?rm’s prod-
uct decreased.
D.A technological advance increased the
productivity of the?rm’s workforce.
E.The?rm negotiated new contracts with
workers,lowering wages,
14Suppose that a large number of unskilled workers enter a nation’s labor market.If the labor market is competitive,the number of unskilled workers hired and the wage rate will most likely change in which of the following ways?
Number of
Unskilled Workers Hired Wage Rate
(a)Increase Increase
(b)Increase Decrease
(c)Increase Not change
(d)Decrease Increase
(e)Decrease Decrease
15A society that wishes to achieve greater income equality is most likely to have which of the follow-ing?
A.A regressive income tax system and high
estate and gift taxes
B.A regressive income tax system and low
estate and gift taxes
C.A progressive income tax system and
high estate and gift taxes
D.A progressive income tax system and low
estate and gift taxes
E.A proportional income tax system and
high estate and gift taxes
16The study of economics is primarily concerned with which of the following?
A.The testing of hypotheses under con-
trolled conditions
B.The allocation of scarce resources,given
unlimited wants
C.The fair and equal treatment of all
households
D.The provision of conclusive answers to
pub1ic policy issues
E.The development of the dynamics of
group behavior
17Mr.Carpenter devotes his working time to produc-ing tables and chairs.An increase in the demand for chairs will resu1t in
A.an increase in the amount of time he de-
votes to producing tables
B.an increase in his opportunity cost of
producing tables
C.a decrease in the price of lumber
D.a decrease in the price of chairs
E.a decrease in his total revenue
18Assume that both the supply of and the demand for a good are relatively price elastic.The impo-sition of a per-unit excise tax on the sale of the good would cause the equilibrium and quantity to change in which of the following ways?Price Quantity
A.Increase Increase
B.Increase NO change
C.Increase Decrease
D.Decrease No change
E.Decrease Decrease
19Assume that consumers consider potatoes to be an inferior good,but consider rice to be a normal good.An increase in consumers’incomes will most likely a?ect the equilibrium price and quantity of potatoes and rice in which of the following ways?
Potato Rice
Price Quantity Price Quantity
(a)Decrease Decrease Increase Increase
(b)Decrease Increase Increase Decrease
(c)Decrease Decrease Decrease Decrease
(d)Increase Increase Decrease Decrease
(e)Increase Decrease Increase Decrease 20Assume that a consumer spends all her income on the purchase of two goods.If the consumer’s in-come doubles and the prices of the two goods also double,the quantity of the two goods purchased will
A.Also double
B.more than double
C.increase,but it will be less than double
D.not change
E.depend on the slope of the demand curve 21Economies of scale exists when
A.the doubling of all inputs doubles the
output produced
B.short-run average total cost decreases as
output increases
C.short-run average total cost remains con-
stant as output increases
D.long-run average total cost increases as
output increases
E.long-run average total cost decreases as
output increases
22Locotek produces toy trains and pays each worker $350per week.Five workers can produce40trains per week and six workers can produce45trains per week.The marginal product per week of the sixth worker is
A.$70
B.$350
C.5trains
D.7.5trains
E.42.5trains
23If the only two?rms in an industry successfully collude to maximize their joint pro?t,the price for the product will be
A.equal to the marginal cost of production
B.equal to the average total cost of produc-
tion
C.above the marginal cost of production
D.above the monopoly price
E.below the average variable cost of pro-
duction
24If there are many?rms in an industry and each ?rms’s product indistinguishable from the prod-ucts of all other?rms,the individual?rms’s de-mand curve will be
A.upward sloping and di?erent for each
?rm
B.downward sloping and di?erent for each
?rm
C.downward sloping and identical for every
?rm
D.horizontal and di?erent for each?rm
E.horizontal identical for every?rm
25Monopoly is di?erent from a perfectly competitive ?rm in that a monopoly
A.does not have a U-shaped average total
cost curve
B.has an average?xed cost curve that is
perfectly horizontal
C.has a marginal revenue curve that lies
below its demand curve
D.a1ways earns economic pro?ts
E.operates in the inelastic segment of its
demand curve
26Price discrimination occurs when
A.the supp1y of the product is elastic
B.a product’s average cost is greater than
its average revenue
C.a product’s average cost is less than its
average revenue
D.di?erences in a product’s price re?ection
di?erences in marginal costs
E.di?erences in a product’s price do not re-
?ect di?erences in costs of production 27If a5percent wage increase in a particular labor market results in a10percent decrease in employ-ment,the demand for labor is
A.perfectly elastic
B.relatively elastic
C.unit elastic
D.relatively inelastic
E.perfectly inelastic
Marginal Marginal Number Hourly Factor Revenue
of Workers Wages Cost Product
10$5.00
11 5.10$6.10/hr$8.70/hr
12 5.20$6.30/hr$7.60/hr
13 5.30$6.50/hr$6.50/hr
14 5.40$6.70/hr$5.40/hr
15 5.50$6.90/hr$4.30/hr
28According to the information in the table above, the twelfth worker wou1d increase the hour1y pro?t by
A.$0.20
B.$1.10
C.$1.30
D.$2.40
E.$5.20
29Characteristics of a pure pub1ic good include which of the following?
A.[I.]Nonpaying consumers cannot be ex-
cluded from consuming the good.
B.[II.]Consumption by any one person
does not reduce the availability of the
good to others.
C.[III.]The amount consumed depends on
the price paid.
A.I only
B.II only
C.III only
D.I and II only
E.II and III only
30Which of the following tends to increase the gap in cu1aings between shlled and uns11cd workers over time?
A.An increase in the demand for unskilled
workers relative to skilled workers
B.An increase in the supply of skilled work-
ers relative to unskilled workers
C.A decrease in the demand for unskilled
workers relative to skilled workers
D.A decrease in both the demand for and
the supply of skilled workers
E.An increase in both the demand for and
supply of unskilled workers
31For an economy with a straight-line production possibilities curve,which of the following must be true?
A.[I.]The opportunity cost of producing
another unit is constant.
B.[II.]Resources are completely adaptable
to alternative uses.
III.Resources are used e?ciently.
A.I only
B.II only
C.III only
D.I and II
E.II and III
32Consumer surplus is de?ned as
A.opportunity cost minus total revenue
B.total revenue minus opportunity cost
C.the di?erence between the resource costs
and the price that consumers pay
D.the di?erence between the value that
consumers place on a good and the price
they pay
E.the sum of external costs and bene?ts 33Which of the following would cause the equilibrium price of good X to increase?
A.Producers of good X and a new technol-
ogy that reduces the cost of producing
X.
B.The price of an essential input in the pro-
duction of good X increases.
C.Goods X and Y are complements,and
the government imposes a tax on good
Y.D.Good X is a normal good,and the gov-
ernment increases income taxes by3%.
E.Good X is all inferior good,and the gov-
ernment decreases income taxes by10%.
34The graph above shows the supply and demand curve for artichokes.The surgeon general an-nounces that eating an artichoke a day dramat-ically reduces one’s likelihood of developing can-cer.Simultaneously an infestation of the artichoke weevil severely damages the crop.Which of the following will de?nitely occur as a result?
A.The supply of artichokes will increase.
B.The price of artichokes will increase.
C.The demand for artichokes will decrease.
D.The quantity of artichokes grown will de-
crease.
E.The pro?ts of farmers who specialize in
growing artichokes will decrease.
35The price of an airline ticket is typically lower if
a traveler buys the ticket several weeks before the
?ight’s departure date rather than on the day of departure.This pricing strategy is based on the assumption that
A.travelers are not aware of how airline
prices change across time
B.travelers do not have alternative modes
of transportation
C.travelers will pay any price to travel as
the departure date approaches
D.the marginal cost of the last few seats on
an airplane higher than that for the?rst
few seats
E.travelers’demand becomes less elastic as
the departure date approaches
36Technological advances will lead to
A.an increase in marginal utility
B.a decrease in average total costs
C.a decrease in in net exports
D.an increase in marginal costs
E.diseconomies of scale
37Marginal cost is de?ned as the
A.change in total cost resulting from pro-
ducing an additional unit of output
B.change in total cost resulting from using
an additional unit if input
C.di?erence between total cost and total
variable cost
D.di?erence between total variable cost and
total?xed cost
E.di?erence between average total cost and
average variable cost divided by output
Question38-39
are based on the following matrix
The payo?matrix above gives the pro?ts associ-ated with the strategic choices of two?rms in an oligopolistic industry.The?rst entry in each cell is the pro?t to?rm A and the second to?rm B. 38If the two?rms collude,Firm A’s and Firm B’s pro?ts would be which of the following?
Firm A Firm B
(a)$150$50
(b)$100$100
(c)$100$150
(d)$50$100
(e)$50$50
39If each?rm simultaneously chooses its pricing strategy without collusion,Firm A’s and Firm B’s pro?ts would be which of the following?
Firm A’S PROFIT FIRM B’S PROFIT
(a)$150$50
(b)$100$100
(c)$100$150
(d)$50$100
(e)$50$50
40In the short run,a perfectly competitive?rm should shut down whenever
A.minimum average variable cost exceeds
price
B.minimum average total cost exceeds
price
C.marginal revenue exceeds marginal cost
D.marginal cost exceeds marginal revenue
E.it is losing money
41A constant-cost,perfectly competitive industry is in long-run equilibrium.If the demand for the good increases,which of the following will occur in the long run?
A.The price will remain unchanged.
B.The price will increase.
C.The price will decrease.
D.Economic pro?ts will increase.
E.Economic pro?ts will decrease.
42Assume a?rm uses only two inputs,capital(K)and labor(L),to produce its output.Let the marginal product of capital be MP K,the marginal product of labor be MP L,the price of capital be P K,and the price of labor be P L.The least cost combina-tion of capital and labor needed to produce a given level of output is given by which of the following?
A.MP L/P L=MP K/P K
B.MP L/P L>MP K/P K
C.MP L/P K=MP K/P L
D.(MP L)P L=(MP K)P K
E.MP L=MP K
43A?rm’s demand curve for labor is equal to a seg-ment of its
A.average variable cost curve
B.total revenue curve
C.marginal cost curve
D.marginal revenue product curve
E.average product curve 44A Lorenz curve can be used by economists to do which of the following?
A.Show the distribution of personal income
B.Show the amount of wealth in a nation
C.Show the amount of consumption in a
nation
D.Explain why di?erent households have
di?erent incomes
E.Explain why income is equally dis-
tributed in socialist countries
45The surgeon general has determined that smok-ing causes cancer and heart disease for both smok-ers and passive smokers,nonsmokers who breathe smoke-?lled air.If cigarette prices are determined in a free market,which of the following will be true?
A.The price of cigarettes will be too low
and the quantity sold will be too high.
B.The price of cigarettes will be e?cient
but the quantity sold will be too high.
C.The market will be e?cient because mar-
kets always equate marginal bene?t and
marginal costs.
D.The price of cigarettes will re?ect the
marginal social bene?t received by non-
smokers.
E.The price of cigarettes will overstate the
true social cost imposed on nonsmokers. 46An opportunity cost is entailed in which of the fol-lowing situations?
A.[I.]A student decides to attend college
fu11-time.
B.[II.]A family uses its$20,000savings to
purchase an automobi1e.
C.[III.]A farmer decides to grow more
wheat and less corn.
A.I only
B.II only
C.III only
D.I and III only
E.I,II,and III
47If the demand for good Y increases as the price of good X decreases,it can be concluded that
A.X and Y are substitute goods
B.X and Y are complementary goods
C.X is an inferior good and Y is a superior
good
D.X is a superior good and Y is an inferior
good
E.both X and Y are inferior goods
48If the market demand for a good is inelastic and the supply is elastic,which of the following is true when there is an increase in sales tax?
A.Consumers will bear most of the burden
of the tax.
B.Producers will bear all of the burden of
the tax.
C.Producers will bear most of the burden
of the tax or risk losing sales.
D.Both consumers and producers will share
the burden of the tax equally.
E.The price of the good will not change. 49If a perfectly competitive?rm increases its price above the market equilibrium price,which of the following will be true for this?rm?
A.Its total revenue will increase.
B.Its pro?t will increase.
C.Its sales will decrease but pro?t will not
be a?ected.
D.Its demand curve will become downward
sloping.
E.It will not be able to sell any output. 50Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in the production of the other.An increase in the demand for leather will most likely cause
A.a decrease in the price of leather
B.a decrease in the price of beef
C.a decrease in the equilibrium quantity of
beef sold
D.an increase in the demand for beef in the
short-run
E.an increase in the supply of leather 51Which of the following best explains why the short-run average total cost curve is U-shaped?
A.Spreading total?xed costs over a larger
output,and constant returns
B.Spreading total?xed costs over a larger
output,and eventually diminishing re-
turns
C.Increasing total?xed costs and increas-
ing returns
D.Increasing average variable costs and de-
creasing returns
E.Decreasing average variable cost and in-
creasing returns
52Assume that a?rm is maximizing short-run prof-its and that price is greater than average variable cost.Which of the following must be true at the ?rm’s level of output?
A.Marginal revenue is equal to average to-
tal cost.
B.Marginal revenue is greater than total
variable cost.
C.Marginal revenue equal to price,which is
greater than average total cost.
D.Marginal revenue equal to marginal cost.
E.Price is equal to average total cost.
53A sing1e-price monopolist’s marginal revenue is
A.equal to its price
B.less than its price
C.greater than its price
D.negative when it maximizes revenues
E.zero when it maximizes pro?t
54When marginal product exceeds average product, which of the following must be true?
A.Average product is increasing.
B.Average product is decreasing.
C.Marginal product is increasing.
D.Total product is decreasing.
E.Total product is at its maximum.
55Which of the following is true if a monopolist’s marginal revenue is negative at the current level of output?
A.Demand for its product is unit elastic.
B.Demand for its product price elastic.
C.Demand for its product price inelastic.
D.Marginal cost is equal to price.
E.Marginal revenue is equal to price.
56A merger of two?rms may increase economic e?-ciency by
A.decreasing average total cost through an
increase in economies of scale
B.decreasing output to reduce marginal
cost and equalize price
C.increasing economic pro?t but decreas-
ing consumer surplus
D.increasing consumer surplus by decreas-
ing economic pro?ts
E.increasing consumer surplus by shifting
the demand curve
for the product to the right 57The graph above illustrates the labor market for teenage workers.The current minimum wage for all workers is W1.If Congress introduces a submin-imum wages,W2that applies only to teenagers, what is the most likely e?ect on teenage employ-ment?
A.Teenage employment will increase be-
cause?rms will want to hire more
teenagers at W2than at W1.
B.Teenage employment will increase be-
cause more teenagers will want to work
at W2than at W1.
C.Teenage employment will decrease be-
cause fewer teenagers will want to work
at W2than at W1.
D.Teenage employment will decrease be-
cause?rms will want to hire fewer
teenagers at W2than at W1.
E.Teenage employment will pay the same
because the market-clearing wage is
lower than W1and W2.
58Marginal revenue product is de?ned as the
A.change in income that occurs when an
individual works additional hours
B.change in total revenue that occurs when
one additional unit of the good is pro-
duced
C.change in total revenue that occurs when
one additional unit of an input is em-
ployed
D.total revenue divided by the quantity of
labor employed
E.change in total cost that occurs when one
additional unit of an input is employed 59An increase in the marginal social bene?t?con-suming a public good should resu1t in
A.a decrease in public production of the
good
B.an increase in the optimal quantity of the
good
C.a decrease in the optimal quantity of the
good
D.a decrease in the social costs associated
with producing the good
E.a decrease in the social costs associated
with consuming the good 60An industry will produce more than the socially ef-?cient level of output under which of the following conditions?
A.The production or consumption of a
good generates a positive externality.
B.The production or consumption of a
good generates a negative externality.
C.The industry is a monopoly.
D.The industry produces a public good.
E.The industry produces a private good.
END OF SECTION I
Answer Keys to2005AP Micro Economics Multiple Choice Question
Item No.Correct Answer 1A
2A
3A
4C
5B
6A
7C
8A
9B
10B
11D
12E
13C
14B
15C
16B
17B
18C
19A
20D
21E
22C
23C
24E
25C
26E
27B
28C
29D
30C Item No.Correct Answer 31D
32D
33B
34B
35E
36B
37A
38B
39E
40A
41A
42A
43D
44A
45A
46E
47B
48A
49E
50B
51B
52D
53B
54A
55C
56A
57A
58C
59B
60B