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AP Microeconomics Medium practice

15 questions

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Medium practice

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Question 1

A monopsony in the labor market is characterized by:

A.A single seller of labor who can set the wage above the competitive level.B.A single buyer of labor who pays a wage below the competitive level.C.A market with many employers competing to hire the same workers at a single wage.D.A labor market with a government-imposed wage ceiling below the competitive rate.

Question 2

Which of the following best describes the economic rationale for government subsidies for elementary education?

A.Education is a private good, and subsidies prevent overproduction by competitive firms.B.Education generates positive externalities (better-informed citizens, lower crime, economic growth) that private markets underprovide.C.Education is a pure public good because knowledge is non-rival and non-excludable.D.Government must provide education because private firms could never earn a profit providing it.

Question 3

A natural monopoly exists when:

A.A single firm controls a key natural resource needed to produce the good.B.A single firm can serve the entire market at a lower average cost than two or more firms could.C.Government grants an exclusive license to one firm to operate in a market.D.A firm's average total cost is minimized at a quantity larger than market demand.

Question 4

Common-pool resources (common resources) differ from public goods because common-pool resources are:

A.Both non-rival and non-excludable, just like public goods.B.Rival in consumption (use by one reduces availability for others) but non-excludable.C.Non-rival but excludable, like cable television.D.Both rival and excludable, like a privately owned farm.

Question 5

As output increases, what is the relationship between marginal cost (MC) and average variable cost (AVC)?

A.MC is always above AVC.B.MC equals AVC at every output level.C.When MC is below AVC, AVC is falling; when MC is above AVC, AVC is rising.D.AVC falls whenever output increases, regardless of the level of MC.

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Question 6

When a new technology improves the production of consumer goods but not capital goods, what happens to the PPC?

Question 7

In the short run, a perfectly competitive firm should continue to produce rather than shut down as long as:

A.Price is greater than average total cost.B.Price is greater than or equal to average variable cost.C.Price is greater than or equal to average fixed cost.D.Total revenue is greater than or equal to total cost.

Question 8

When a new technology significantly raises the marginal product of all workers in an industry, the most likely effect on that labor market is:

A.The labor supply curve shifts right, increasing employment and reducing wages.B.The labor demand curve shifts right, increasing both wages and employment.C.The labor demand curve shifts left as firms need fewer workers to produce the same output.D.The equilibrium wage falls because each worker is now producing the same output more cheaply.

Question 9

If the income elasticity of demand for a good is $- 0.8$ , the good is classified as:

A.A normal good with elastic demand.B.A luxury good because the elasticity is less than 1 in absolute value.C.An inferior good, because demand falls as income rises.D.A necessity, because the elasticity is less than 1.

Question 10

Which of the following correctly describes a firm's marginal cost curve in relation to its production function?

A.MC rises continuously from the first unit because inputs always cost more as output expands.B.MC is the mirror image of the marginal product curve; when MP rises, MC falls.C.MC equals average variable cost at all output levels.D.MC is unrelated to the marginal product of labor because costs and production are separate decisions.

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Question 11

Trade between two parties occurs voluntarily only when:

Question 12

When a new technology improves the production of consumer goods but not capital goods, what happens to the PPC?

A.The PPC shifts outward uniformly along both axes.B.The PPC rotates outward along the consumer goods axis only.C.The PPC shifts inward, reflecting that resources now have an alternative use.D.The PPC becomes linear because the opportunity cost is now constant.

Question 13

Trade between two parties occurs voluntarily only when:

A.One party has absolute advantage in producing every traded good.B.Both parties believe they will be better off from the exchange.C.The terms of trade equal the opportunity cost of the less productive party.D.A government regulator approves the exchange to ensure fairness.

Question 14

A monopolist's deadweight loss is best represented graphically by:

A.The rectangle between the monopoly price and the competitive price, times the monopoly quantity.B.The triangle between the demand curve, the MC curve, and the monopoly quantity.C.The area below the MC curve and above the equilibrium price.D.The entire area between the demand curve and the MC curve at all output levels.

Question 15

Compared to the competitive outcome, a profit-maximizing monopolist produces at a quantity where:

P = M C

, achieving allocative efficiency.B.Output is lower and price is higher, creating deadweight loss.C.Output is higher and price is lower because monopolists have economies of scale.D.Price equals average total cost, ensuring zero economic profit.

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