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AP Microeconomics Hard practice

15 questions

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Hard practice

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Question 1

A minimum wage set above a monopsony's profit-maximizing wage can potentially:

A.Decrease employment because higher wages always reduce the quantity of labor demanded.B.Increase both employment and wages simultaneously.C.Have no effect because the monopsonist sets wages independently of government policy.D.Cause the monopsonist to exit the market due to unsustainable labor costs.

Question 2

Which statement accurately distinguishes explicit costs from implicit costs?

A.Explicit costs are variable; implicit costs are fixed.B.Explicit costs involve direct money payments; implicit costs are opportunity costs of owned resources.C.Explicit costs are included in economic profit calculations but implicit costs are not.D.Implicit costs are always larger than explicit costs for any firm.

Question 3

A concave (bowed-out) PPC, as opposed to a linear one, reflects which economic principle?

A.Constant opportunity costs for each additional unit of a good produced.B.The law of increasing opportunity costs due to resource specialization.C.Diminishing marginal utility of consumption rather than production constraints.D.Economies of scale in producing both goods simultaneously.

Question 4

When a firm has market power in both its output market (monopoly) and input market (monopsony), how does this affect labor hired compared to the competitive benchmark?

A.The firm hires more workers than the competitive benchmark because it can price its output higher.B.The firm hires fewer workers than the competitive benchmark due to market power on both sides.C.Employment is unchanged because the monopoly output effect and monopsony input effect cancel each other.D.The firm pays a wage above the competitive rate to attract workers away from other industries.

Question 5

A monopolist practicing perfect price discrimination (1st-degree price discrimination) compared to a single-price monopolist would:

A.Produce less output and earn less profit.B.Produce the same output but charge different prices to different consumers.C.Eliminate deadweight loss by expanding output to the competitive level.D.Reduce producer surplus because charging different prices costs more to administer.

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Question 6

A monopolistically competitive firm in long-run equilibrium operates with excess capacity because:

A.It faces a perfectly elastic demand curve and must accept the market price.B.It produces at a quantity less than the minimum efficient scale (minimum ATC).C.It produces where price equals marginal cost, fully exhausting potential gains from trade.D.It is forced by government regulation to maintain a reserve production capacity.

Question 7

Second-degree price discrimination (quantity discounts) differs from third-degree price discrimination primarily because:

A.Second-degree discrimination targets individual consumers; third-degree targets market segments.B.Second-degree discrimination uses quantity blocks that allow consumers to self-select; third-degree separates consumers into identifiable groups.C.Third-degree discrimination requires lower prices in all markets, while second-degree requires higher prices.D.Second-degree discrimination eliminates all deadweight loss; third-degree does not.

Question 8

The long-run supply curve in a constant-cost perfectly competitive industry is:

A.Upward sloping, because more output always requires higher costs.B.Perfectly horizontal (elastic) at the minimum long-run ATC.C.Perfectly vertical (inelastic) because production capacity is fixed in the long run.D.Downward sloping, because economies of scale lower costs as the industry grows.

Question 9

A concave (bowed-out) PPC, as opposed to a linear one, reflects which economic principle?

Question 10

A deadweight loss (DWL) in a market arises whenever:

A.Equilibrium price is higher than the minimum price consumers are willing to pay.B.Quantity traded falls below or rises above the socially optimal (competitive equilibrium) quantity.C.Total consumer surplus exceeds total producer surplus.D.The government collects tax revenue from market transactions.

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Question 11

If the government imposes an excise tax on a good with relatively elastic demand and inelastic supply, the larger share of the tax burden will be borne by:

A.Consumers, because they have less ability to respond to price changes.B.Producers, because their inelastic supply limits their ability to reduce output in response to the tax.C.The government, because an excise tax reduces total surplus in the economy.D.Neither side, because the market reaches a new equilibrium with no welfare loss.

Question 12

A negative externality in production causes the market to produce more than the socially optimal quantity because:

A.The market supply curve is set below the social marginal cost curve, leading to artificially low prices.B.Demand is artificially high because consumers do not bear the external costs.C.The government subsidizes the externality-producing firm to maximize tax revenue.D.Marginal social cost equals marginal social benefit at the market equilibrium.

Question 13

Two firms are deciding whether to advertise. The payoff matrix (Firm A profit, Firm B profit) is:

	B Advertises	B Doesn't Advertise
A Advertises	(4, 4)	(10, 2)
A Doesn't Advertise	(2, 10)	(8, 8)

What is the Nash equilibrium outcome?

A.Both firms advertise, each earning a profit of 4.B.Neither firm advertises, each earning a profit of 8.C.Only Firm A advertises, earning a profit of 10.D.Firm A does not advertise; Firm B advertises — the Pareto-optimal outcome.

Question 14

The labor supply curve for an individual worker is often described as backward-bending because:

A.At all wages, higher pay causes workers to prefer leisure over work.B.At sufficiently high wages, the income effect outweighs the substitution effect, causing workers to work fewer hours.C.Workers always prefer the minimum socially acceptable wage to maximize leisure time.D.Higher wages reduce worker productivity, causing firms to demand less labor over time.

Question 15

According to the Coase theorem, externalities can be corrected through private bargaining when:

A.The government enforces a Pigouvian tax equal to the marginal external cost.B.Property rights are clearly defined and transaction costs are low.C.The number of affected parties is large and diverse.D.The externality is positive rather than negative.

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