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AP Micro: Thanksgiving Break Work
1. The fundamental problem in economics is:
A. to achieve a more equitable distribution of income in society.
B. that productive resources are scarce relative to economic wants.
C. to establish prices which are fair for both producers and consumers.
D. that product prices rise more rapidly than incomes of consumers.
2. The basic economic problem is the combined existence of:
A. inflation and unemployment.
B. economic freedom and income equality.
C. scarce economic resources and unlimited economic wants.
D. growing populations and the depletion of natural resources.
3. As a student of economics, when you speak of scarcity, you are referring to the ability of society to:
A. employ all of its resources.
B. consume all that is produced.
C. satisfy economic wants given limited resources.
D. continually make technological breakthroughs and increase production.
4. What is the economic meaning of the expression that "there is no such thing as a free lunch"?
A. It refers to "free-riders," who do not pay for the cost of a product, but who receive the benefit from it.
B. It means that economic freedom is limited by the amount of income available to the consumer.
C. It means that there is an opportunity cost when resources are used to provide "free" products.
D. It indicates that products only have value because people are willing to pay for them.
5. The utility of a specific product:
A. is determined by consumer income.
B. is determined by the price of the product.
C. varies from person to person using the product.
D. is constant from person to person using the product.
6. From an economic perspective, when a student decides to attend another year of college, the student has concluded that the
marginal:
A. costs of attending college has decreased that year.
B. benefits of attending college has increased that year.
C. benefits of attending college are greater than the marginal costs.
D. costs of attending college will be subsidized by someone else such as parents or the government.
7. Microeconomics is the study of economics from the standpoint of:
A. the entire economy, or large sectors of it.
B. all consumers and producers in the economy.
C. the aggregate levels of income, employment, and prices.
D. specific economic units which make up our economic system.
AP Micro: Thanksgiving Break Work
8. Economists would classify all of the following as land except:
A. two thousand acres of virgin forest.
B. a hydroelectric dam.
C. crude oil reserves.
D. iron ore deposits.
9. Money is not considered to be an economic resource because:
A. as such it is not productive.
B. money is not a free gift of nature.
C. the terms of trade can be determined in nonmonetary terms.
D. idle money balances do not earn interest income.
10. The role of the entrepreneur in society is to:
A. bring the factors of production together and take the risks of producing.
B. provide capital to the firm which the management combines with labor.
C. control the land upon which all production takes place to get the most rent.
D. work with other elected officials to determine what goods are produced.
11. When an economy is at full employment and full production, more of any one product:
A. cannot be produced because there is full production.
B. can be produced only if there is a general decrease in prices.
C. can be produced only if there is less production of some other products.
D. cannot be produced unless private enterprise does so rather than government.
AP Micro: Thanksgiving Break Work
12. Refer to the above graph. The total opportunity cost of nine drill presses is:
A. 1 unit of bread.
B. 2 units of bread.
C. 3 units of bread.
D. 4 units of bread.
13. A point inside the production possibilities curve is:
A. attainable and the economy is efficient.
B. attainable, but the economy is inefficient.
C. unattainable, but the economy is inefficient.
D. unattainable and the economy is efficient.
14. A point outside the production possibilities curve is:
A. attainable, but there is not full employment.
B. attainable, but there is not productive efficiency.
C. unattainable because the economy is inefficient.
D. unattainable because of limited resources.
15. The combination of food and clothing shown by point G on the above graph:
A. is not attainable, given society's available resources and technology.
B. can be attained only if some of society's resources are unemployed.
C. suggests that the law of increasing relative costs is not relevant in this case.
D. results only because society allocates its resources inefficiently.
16. The combination of food and clothing shown by point F on the above graph:
A. is an efficient use of society's resources because it is below the production possibilities curve.
B. would be a desirable combination of outputs only if there was no international trade.
C. is attainable but involves the unemployment and inefficient use of some of society's resources.
D. is not attainable with current resources and technology.
AP Micro: Thanksgiving Break Work
17. The production possibilities curve bows outward from the origin because:
A. opportunity costs decrease as the production of a good increases.
B. opportunity costs increase as the production of a good increases.
C. more production of one good results in more production of the other good.
D. resources are of uniform quality.
18. When a state government chooses to build more roads, the required resources are no longer available for spending on
public education. This dilemma illustrates the concept of:
A. marginal analysis.
B. full employment.
C. full production.
D. opportunity cost.
19. When a society underallocates resources to the production of a good or service, it indicates that the:
A. marginal benefit is greater than the marginal cost.
B. marginal benefit is less than the marginal cost.
C. opportunity cost of production is increasing.
D. consumption of the product is decreasing.
AP Micro: Thanksgiving Break Work
20. Refer to the above graph. The selection of which point on the production possibilities curve is most like to result in the
largest increase in economic growth over time?
A. A
B. B
C. C
D. D
21. Which situation would most likely shift the production possibilities curve for a nation in an outward direction?
A. a decrease in the quality of products
B. an increase in the supply of resources
C. a decrease in the state of technology
D. an increase in the amount of discrimination
22. A nation can increase its production possibilities by:
A. shifting resources from investment good production to consumer good production.
B. shifting resources from private goods to public goods.
C. improving labor productivity.
D. eliminating discrimination.
23. By free enterprise, we mean that:
A. products are provided free to those who can't afford to buy them.
B. individual producers determine how to produce, but government agencies determine what will be produced.
C. individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose.
D. individuals are free to produce those products that government agencies determine can be produced profitably.
24. Anything that is generally acceptable in exchange for goods and services is:
A. a medium of exchange.
B. a measure of value.
C. a store of value.
D. token money.
AP Micro: Thanksgiving Break Work
25. Which is not one of the Four Fundamental Questions?
A. How will goods and services be produced?
B. How should the system promote progress?
C. Who is to receive the output of the system?
D. What goods and services should be produced by government?
26. What to produce in a market economy is ultimately determined by the:
A. output decisions of business firms.
B. income plans of households.
C. spending decisions of households.
D. workers' technical skills.
27. Refer to the above figure. If box D represents the product market and flow (6) represents consumption expenditures, then
box C is:
A. households, flow (7) is revenue, and flow (8) is goods and services.
B. businesses, flow (7) is revenue, and flow (8) is goods and services.
C. households, flow (7) is goods and services, and flow (8) is revenue.
D. businesses, flow (7) is goods and services, and flow (8) is revenue.
28. Refer to the above figure. If flow (1) is the cost businesses pay to the resource market, then:
A. (2) is the flow of productive resources.
B. (4) is the flow of goods and services.
C. (6) is the flow of money income.
D. (7) is the flow of revenue.
AP Micro: Thanksgiving Break Work
29. If average income increases, ceteris paribus, then there will be:
A. a shift of the demand curve.
B. a movement along the demand curve.
C. a movement along and a shift in the demand curve.
D. no effect on the demand curve, because income is not a ceteris paribus condition.
30. For most products, purchases tend to rise with increases in buyers' incomes, and to fall with decreases in buyers' incomes.
Such products are known as:
A. inferior goods.
B. direct goods.
C. average goods.
D. normal goods.
31. If the demand for product J shifts to the left as the price of product K increases, then:
A. the number of consumers of product K has increased.
B. the income of consumers of product K has increased.
C. J and K are substitute goods.
D. J and K are complementary goods.
32. A decrease in the price of product X causes an increase in the demand for product Y. Products X and Y are most likely to
be:
A. apples and oranges..
B. butter and margarine.
C. hamburgers and pizza
D. video recorders and videotapes.
33. An increase in the price of product G will result in a(n):
A. increase in the demand for G.
B. decrease in the demand for G.
C. larger quantity of G demanded.
D. smaller quantity of G demanded.
AP Micro: Thanksgiving Break Work
34. Refer to the above graph. A decrease in demand would best be reflected by a change from:
A. point 4 to 6.
B. point 1 to 3.
C. line A to B .
D. line A to C .
35. Refer to the above graph. An increase in the quantity demanded would best be reflected by a change from:
A. point 6 to 4.
B. point 6 to 3.
C. line A to B.
D. line A to C.
36. An improvement in the technology of production for a specific good is expected to cause:
A. higher prices and increased quantity sold.
B. lower prices and increased quantity sold.
C. lower prices and decreased quantity sold.
D. higher prices and decreased quantity sold.
37. A surplus of any given commodity can be expected whenever the:
A. prevailing price of the good is below the equilibrium price.
B. prevailing price of the good is above the equilibrium price.
C. quantity demanded of the good exceeds the quantity supplied.
D. prevailing market price of the good rises.
38. Over a period of time both the price and the quantity sold of a certain product have increased. One possible explanation
might be that:
A. supply increased over time, while demand remained the same.
B. demand increased over time, while supply remained the same.
C. supply decreased over time, while demand remained the same.
D. supply increased over time, while demand declined.
39. An increase in the demand for corn is more than offset by an increase in its supply. As a result the equilibrium price will:
A. increase and the equilibrium quantity will decrease.
B. increase and the equilibrium quantity will increase.
C. decrease and the equilibrium quantity will decrease.
D. decrease and the equilibrium quantity will increase.
40. The price elasticity of demand is a measure of the:
A. steepness or slope of a demand curve.
B. absolute changes in quantity demanded and price.
C. responsiveness of quantity demanded to a change in price.
D. sensitivity of the quantity demanded for one good to a change in the price of another good.
AP Micro: Thanksgiving Break Work
41. A straight-line downward-sloping demand curve has a price elasticity of demand which:
A. decreases as price decreases.
B. increases as price decreases.
C. is zero at all prices.
D. is unitary at all prices.
42. Which is not characteristic of a product with relatively inelastic demand?
A. The good is regarded by consumers as a necessity.
B. There are a large number of good substitutes for the good.
C. Buyers spend a small percentage of their total income on the product.
D. Consumers have had only a short time period to adjust to changes in price.
43. Which is not a determinant of the price elasticity of demand for most products?
A. the slope of the demand curve for a product
B. the number of good substitutes available for the product
C. the proportion of most consumers' budget spent on the product
D. the amount of time consumers have to adjust their purchases of a product to a change in its price
44. Elasticity of supply will increase when:
A. the number of producers selling a product decreases.
B. producers are given less time to respond to price changes.
C. the number of consumers wanting to purchase a product increases.
D. it becomes easier to substitute one factor of production for another in a manufacturing process.
45. If a union argues that a price cut will boost revenues of the firm and management argues that the opposite is true, then the
price elasticity of demand is:
A. unit-elastic from the union's perspective and unit-inelastic from management's perspective.
B. perfectly inelastic from the union's perspective and perfectly elastic from management's perspective.
C. elastic from the union's perspective; inelastic from management's perspective.
D. inelastic from the union's perspective; elastic from management's perspective.
46. Which of the following is the best example of market failure?
A. Lucian wants more video games but doesn't buy them because his willingness to pay is less than the equilibrium price in the
market.
B. Kara's Kitten Shop won't sell more purebred cats because the equilibrium price in the market is less than it would cost her
to provide more.
C. Alex and others in a community want a new outdoor soccer field, and are willing to pay to use it, but no private business is
willing to build it.
D. Government fixes the price of gasoline, resulting in a shortage.
47. Which is an example of a market failure?
A. There are not enough tickets available to concerts of extremely popular performers.
B. The price of medical care has risen dramatically as a result of the introduction of sophisticated equipment and techniques.
C. Polio shots and chest x-rays provide widespread benefits to the community as a whole as well as to the individuals who get
them.
D. Extensive decreases in the prices of electronic equipment resulted in large numbers of bankruptcies in the computer
industry.
AP Micro: Thanksgiving Break Work
48. If an economy is being "productively efficient," then that means the economy is:
A. producing the products most wanted by society.
B. fully employing all economic resources.
C. maximizing the returns to factors of production.
D. using the least costly production techniques.
49. To internalize the external costs of pollution is to:
A. levy taxes on manufacturing firms located in crowded urban areas.
B. auction off pollution rights to those willing to pay the most for them.
C. make the polluter pay all of the costs associated with the polluting activity.
D. require that private citizens rather than taxpayers pay for the harmful effects of pollution.
50. Which of the following taxes would most likely be regressive?
A. a 6 percent sales tax
B. a 15 percent flat-rate income tax
C. a progressive income tax
D. a corporate income tax
51. One of the major advantages of the corporation is that:
A. the owners are protected by the concept of limited liability.
B. it is easier to borrow money because lenders have to deal with only one person.
C. there is little red tape and expense in organizing such a business.
D. there are exempt from federal, state and local taxes.
52. The law of diminishing returns implies:
A. the more hours you spend studying the less you will know.
B. your understanding will be increased by decreasing your marginal study time.
C. eventually, the more hours you spend studying per day, the less you will learn with each added hour.
D. the more hours you spend studying per day, the more you will learn with each added hour.
53. At what point does marginal product equal average product?
A. where average product is equal to its minimum value
B. where average product is equal to its maximum value
C. where marginal product is equal to its minimum value
D. where marginal product is equal to its maximum value
54. The short-run marginal-cost (MC) curve eventually rises because of:
A. diseconomies of scale.
B. increasing fixed costs.
C. diminishing marginal returns.
D. increasing marginal productivity of the variable inputs.
55. The range over which average variable cost is increasing is the same as the range over which:
A. marginal cost is decreasing.
B. average fixed cost is increasing.
C. average product is increasing.
D. average product is decreasing.
AP Micro: Thanksgiving Break Work
56. If marginal cost is below average variable cost:
A. average total cost is increasing but average variable cost is decreasing.
B. both average total cost and average variable cost are decreasing.
C. both average total cost and average variable cost are increasing.
D. average variable cost is less than average fixed cost.
57. Which statement is correct?
A. Marginal cost is the change in average cost when there is a change in output of 1 unit.
B. The marginal cost curve cuts the average variable cost curve at its lowest point.
C. In the long run view of the firm, all costs are fixed.
D. If average variable cost is increasing, then average total cost must be increasing too.
58. There would be some control over price within rather narrow limits in which market model?
A. monopolistic competition
B. pure competition
C. pure monopoly
D. oligopoly
59. Which idea is inconsistent with pure competition?
A. short-run losses
B. product differentiation
C. freedom of entry or exit for firms
D. a large number of buyers and sellers
60. Which is a reason why there is no advertising by individual firms under pure competition?
A. Firms produce a homogeneous product.
B. The quantity of the product demanded is very large.
C. The market demand curve cannot be increased.
D. Firms do not make long-run profits.
61. A purely competitive firm can be identified by the fact that:
A. there are other firms in the industry producing close substitutes.
B. it is making only normal profits in the short run.
C. its average revenue equals marginal revenue.
D. it experiences diminishing marginal returns.
62. In pure competition, the demand for the product of a single firm is perfectly:
A. elastic because the firm produces a unique product.
B. inelastic because the firm produces a unique product.
C. elastic because many other firms produce the same product.
D. inelastic because many other firms produce the same product.
AP Micro: Thanksgiving Break Work
63. In the standard model of pure competition, a profit-maximizing entrepreneur will shut down in the short run if:
A. marginal cost is greater than average revenue.
B. average cost is greater than average revenue.
C. average fixed cost is greater than average revenue.
D. total revenue is less than total variable costs.
64. Which is necessarily true for a purely competitive firm in short-run equilibrium?
A. Marginal revenue less marginal cost equals zero.
B. Price less average total cost equals zero.
C. Total revenue less total cost equals zero.
D. Marginal revenue is zero.
65. Based on the graph above, the firm is earning:
A. zero normal profits.
B. zero economic profits.
C. zero accounting profits.
D. we can say nothing about this firm's profit or loss situation.
AP Micro: Thanksgiving Break Work
66. Refer to the above graph. It shows a profit-maximizing purely competitive firm operating in the short run. Which area in
the graph represents the amount the firm can save by continuing to produce in the short run rather than closing down
immediately?
A. 0beg
B. 0cdg
C. acdf
D. abef
67. Refer to the above graph. It shows a profit-maximizing purely competitive firm operating in the short run. Which area in
the graph represents the amount of economic loss for the firm?
A. 0beg
B. bcde
C. acdf
D. abef
68. Refer to the above graph. At output level H, the area:
A. 0CGH represents the firm's total cost of production.
B. ACGE represents the firm's economic profit.
C. 0AEH represents the firm's economic profit.
D. BCGF represents the firm's fixed costs of production.
69. In general, the supply curve of a purely competitive firm is:
A. identical to the marginal-cost curve.
B. a horizontal line equal to the market price.
C. the rising portion of the average-total-cost (ATC) curve.
D. the rising portion of the marginal-cost curve above the AVC curve.
70. Productive efficiency refers to:
A. cost minimization, where P = minimum ATC.
B. production, where P = MC.
C. maximizing profits by producing where MR = MC.
D. setting TR = TC.
AP Micro: Thanksgiving Break Work
71. Pure competition produces a socially optimal allocation of resources in the long run because:
A. marginal cost equals marginal revenue.
B. marginal cost equals average total cost.
C. marginal revenue equals price.
D. marginal cost equals price.
72. The pure monopolist who is nondiscriminating must decrease price on all units of a product sold in order to sell additional
units. This explains why:
A. there are barriers to entry in pure monopoly.
B. a monopoly has a perfectly elastic demand curve.
C. marginal revenue is less than average revenue.
D. total revenues are greater than total costs at the profit maximizing level of output.
73. Given a downsloping linear demand curve, when total revenue is decreasing, marginal revenue is:
A. positive and demand is elastic..
B. negative and demand is elastic.
C. positive and demand is inelastic
D. negative and demand is inelastic.
74. Refer to the above graph showing the short-run revenue curves for a monopolist. At what output
Level is demand inelastic?
A. Q1
B. Q2
C. Q3
D. Q4
75. Refer to the above graph showing the short-run revenue curves for a monopolist. Demand is unit elastic at what price?
A. P1
B. P2
C. P3
D. P4
AP Micro: Thanksgiving Break Work
76. A firm will earn economic profits whenever:
A. marginal revenue exceeds marginal costs.
B. marginal revenue exceeds variable costs.
C. average revenue exceeds average total costs.
D. average revenue exceeds average variable costs.
77. Refer to the above graph. Consider a monopolist in short-run equilibrium. This monopolist:
A. has total fixed costs equal to area BEFC.
B. has total variable costs equal to area 0CFQ.
C. earns economic profit equal to the area of ABED.
D. will cease production since its economic profits are negative.
78. Refer to the above graph. Consider a monopolist in short-run equilibrium. This monopolist:
A. has a loss per unit equal to DE.
B. has total fixed costs equal to area BEFC.
C. earns economic profit equal to the area of ABED.
D. will cease production since its economic profits are negative.
79. Refer to the above graph. Consider a monopolist in short-run equilibrium. This monopolist has total fixed cost equal to
area:
A. BEFC.
B. ABED.
C. ADFC.
D. 0CFQ.
80. The major problem with an unregulated monopoly is that the monopolist will produce:
A. less output and sell at a higher price than would be the case in pure competition.
B. more output and sell at a higher price than would be the case in pure competition.
C. more output and sell at a lower price than would be the case in pure competition.
D. less output and sell at a lower price than would be the case in pure competition.