All AP Microeconomics Resources Show
Which of the following is the best example of consumer surplus? Possible Answers: A pizza worker who is willing to accept a job for $9 per hour is offered $10 per hour. A hungry man pays $3 for a slice of pizza, but would have gladly paid $5 for it. None of the other answers. A pizzeria has a marginal cost of producing a pizza pie of $5 and sells it for $7. Because of a special discount, a customer finds that the price of pizza has been reduced by 25% for the day. Correct answer: A hungry man pays $3 for a slice of pizza, but would have gladly paid $5 for it. Explanation: Consumer surplus is the diffence between what an individual is willing to pay for a good and its market price. Consumer surplus occurs when the consumer's willingness to pay is higher than the good's market price, as in the example where the hungry man pays $3 for a slice of pizza, but would have gladly paid $5 for it. Which of the following can cause a pizzeria's cost curves to shift upward? Possible Answers: An increase in the price of cheese An increase in the pizzeria's output A decrease in the pizzeria's output An increase in the pizzeria's prices A decrease in wages
Correct answer: An increase in the price of cheese Explanation: The only factor that would shift the pizzeria's cost upward is an increase in the price of cheese, one of the pizzeria's inputs. A decrease in wages would shift the cost curve upward. Changes to the pizzeria's output or prices would not shift the pizzeria's cost curve in any direction. If an increase in the price of pizza causes a decrease in the demand for soda, then the two goods are: Possible Answers: luxury goods normal goods substitute goods giffen goods complementary goods Correct answer: complementary goods Explanation: If an increase in the price of pizza causes a decrease in the demand for soda, then the two goods are complementary goods, or goods that are typically consumed together. Thus, the two goods' demand are affected by the demand of the other good. As the price of pizza increases, its demand will likely decrease. The decrease in demand for pizza causes a decrease in demand for soda because the two goods are complementary. If the price of hamburgers drops from $5 to $4 and the quantity demanded increases from 100 to 110, then the demand for movie tickets is: Possible Answers: unit elastic perfectly inelastic perfectly elastic inelastic elastic Explanation: Price elasticity of demand is the measure of the responsiveness of the quantity demanded of a good to the change in its price. Elasticity is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the price elasticity demand of movie tickets is 0.5 (10% change in quantity demanded divided by 20% change in price). If a good's elasticity is less than 1, it is considered inelastic. Which of the following is true of the marginal cost of providing a public good to one additional individual? Possible Answers: It increases as the number of goods provided increases. It is negative. It is positive. It decreases as the number of goods provided increases. It is equal to zero. Correct answer: It is equal to zero. Explanation: A pure public good is non-rival, which means that use by one individual does not reduce its availability to others, and non-excludable, which means that an individual cannot be prevented from consuming the good. Because of its non-rivalrous nature, a public good's consumption has zero marginal cost. A lighthouse is a classic example of a public good. An additional person's use of the lighthouse does not have any associated marginal cost, since its use is non-rivalrous. Which of the following is an example of a private good? Possible Answers: Fireworks A bicycle A public park Public radio A free blog Explanation: A private good is rivalrous, which means that one person's use of the good reduces the availability of the good for others, and excludable, which means that individuals can be effectively excluded from consuming the good. The only choice that fits both descriptions is the bicycle. An oligopolistic industry would most likely have Possible Answers: no barriers to entry a large number of firms price-taking behavior substantial barriers to entry one firm with no close rivals Correct answer: substantial barriers to entry Explanation: An oligopolistic industry is dominated by a small number of firms. Oligopolies are typically caused by significant barriers to entry, which enable a few firms to dominate the industry. The market for pizza is currently in equilibrium. If the demand for pizza increases and its supply decreases, what happens to the price and quantity of pizza? Possible Answers: Price increases but the change in quantity is ambiguous The change in price and quantity is ambiguous Price and quantity both decrease Price and quantity both increase Quantity increases but the change in price is ambiguous Correct answer: Price increases but the change in quantity is ambiguous Explanation: As its supply decreases and its demand increases, the price of pizza will definitely increase. However, the change in quantity is ambiguous and depends on which effect is stronger. Which of the following is an example of a public good? Possible Answers: A movie theatre A truck Satellite TV A neighborhood park A laptop Correct answer: A neighborhood park Explanation: A public good is non-rival, which means that one person's consumption of a good does not affect another person's consumption of the good, and non-excludable, which means that a person cannot be prevented from consuming the good. The only answer that is non-rival and non-exculdable is the neighborhood park. Which of the following is NOT a property of perfectly competitive markets? Possible Answers: The goods are nearly identical. In the long run, firms are expected to earn no profits. The barriers to entry are low. At market equilibrium, price is greater than marginal revenue. There are a large number of firms in the market. Correct answer: At market equilibrium, price is greater than marginal revenue. Explanation: When a a perfectly competitive market is in equilibrium, the marginal revenue curve is a horizontal line at the price level in contrast to monopolies, where the marginal revenue is below price. All of the other answer choices are key characteristics of perfectly competitive markets. All AP Microeconomics ResourcesWhich of the following will lead to an increase in the quantity supplied of a given good?Price is what the producer receives for selling one unit of a good or service. An increase in price almost always leads to an increase in the quantity supplied of that good or service, while a decrease in price will decrease the quantity supplied.
Which of the following would shift the supply curve for a product to the right?A change in the number of sellers in an industry changes the quantity available at each price and thus changes supply. An increase in the number of sellers supplying a good or service shifts the supply curve to the right; a reduction in the number of sellers shifts the supply curve to the left.
Which of the following will cause the demand curve for gasoline to shift leftward?An increase in the price of crude oil, which is an input in the production of gasoline, will cause the supply of gasoline to decrease (leftward shift). This shift will result in a higher equilibrium price and a lower equilibrium quantity.
Which of the following scenarios will shift the supply curve for a good service to the left?If the price of a resource used to produce the product increases, this will increase the costs of production and the producer will no longer be willing to offer the same quantity at the same price. They will want a higher price to cover the higher costs. This shifts the supply curve to the left ( S).
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Which of the following is most likely to decrease supply in the market for pizza?
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