Bremen School District 228 Social Studies Common Assessment 2: Midterm

Bremen School District 228 Social Studies Common Assessment 2: Midterm AP Microeconomics 55 Minutes 60 Questions Directions: Each of the questions or incomplete statements in this exam is followed by five suggested answers or completions. Select the one that is best in each case and then fill in the corresponding oval on the answer sheet. Written: Spring 2014 1

1. Most of the choices that people make are not all-or-nothing choices. As a result, economists generally employ A. graphical analysis B. average cost curves C. marginal analysis D. financial analysis E. laboratory analysis 2. The most probable reason that Sam drinks two cups of coffee at breakfast instead of four is that A. The marginal utility of the coffee eventually diminishes B. Most people can t afford four cups of coffee C. The total utility of coffee increases as one consumes more D. The price of coffee increases as one buys more E. The marginal satisfaction derived from cups of coffee remains constant 3. Unemployment and/or an inefficient allocation of resources A. Causes the production possibilities curve to shift outward B. Causes the production possibilities curve to shift inward C. Can be illustrated by any point on a production possibilities curve D. Can be illustrated by a point outside the production possibilities curve E. Can be illustrated by a point inside the production possibilities curve Use the following table to answer questions 4 and 5 Production Possibilities (per day) For Two Countries, Alpha and Beta Boats Barrels Alpha 160 80 Beta 100 40 4. According to the table, which of the following is true? A. Alpha has an absolute advantage in producing both goods and a comparative advantage in producing barrels B. Beta has an absolute advantage in producing both goods and a comparative advantage in producing boats C. Neither country has an absolute advantage in production D. Alpha has an absolute advantage in producing both goods and a comparative advantage in producing boats E. There can be no gains from trade between two countries 2

5. What is Beta s opportunity cost per boat? A. 40 barrels B. 100 boats C. 0.4 barrels D. 2.5 barrels E. 4,000 barrels Use this production possibilities curve for capital goods to answer questions 6 and 7 Consumption goods 6. If chosen today, which point would provide greater economic growth in the future? A. Point A B. Point B C. Point C D. Point D E. Point E 7. Which point represents an economy in which there is unemployment? A. Point A B. Point B C. Point C D. Point D E. Point E 3

8. If, for each additional unit of a variable input, the increases in output becomes smaller, which of the following correctly identifies the concept? A. Diminishing marginal productivity B. Diminishing marginal utility C. Increasing marginal utility D. Increasing marginal productivity E. Constant costs 9. If, as the price of a particular good increases, the added satisfaction of each additional unit of this good for the consumer decreases, which of the following correctly identifies the concept? A. Diminishing marginal productivity B. Diminishing marginal utility C. Increasing marginal utility D. Increasing marginal productivity E. Constant costs 10. Which of the following statements is correct? A. Economic Profits= Accounting Profits B. Economic costs= Explicit Costs plus Implicit Costs C. Economic costs= Explicit Costs minus Implicit Costs D. Opportunity costs= Economic Profits E. Accounting costs= Implicit Costs 11. In the design of a competitive market system, which of the following does NOT describe how resources are allocated? A. Price signals that guide procedures on what, when, how, and for whom to produce goods and services B. Active government ownership and direction of production C. Voluntary market exchange between buyers and sellers D. Distribution of income and goods on the basis of contribution of productivity E. Profit motivation 12. Which of the following explains why a production possibilities curve is concaved (bowed out) A. Law of demand B. Law of supply C. Constant returns to scale D. Decreasing opportunity costs E. Increasing opportunity costs 4

13. Ray and Dorothy can both cook and pull weeds in the garden on a Sunday afternoon. For every hour cooking, Ray can pull 50 weeds and Dorothy can pull 100. Based on the information. A. Ray pulls weeds since he has an absolute advantage B. Dorothy pulls weeds since she has an absolute advantage in cooking C. Dorothy cooks since she has comparative advantage in cooking D. Ray cooks since he has a comparative advantage in cooking E. Dorothy pulls weeds since she has comparative advantage in cooking. 14. Suppose that the number of law school graduates continues to increase. In that case, lawyers' salaries A. must fall B. must increase C. will fall only if demand increases D. will fall only if demand increases more than supply increases E. will fall only if demand increases less than supply increases 15. Cheese increases in price from $2 to $4 per pound, and this change leads to a decrease in the quantity demanded from 120 to 80 pounds. Demand for cheese is therefore A. elastic B. inelastic C. unitary D. zero E. inferior 5

Question 16 is based on the figure below: 16. Which of the following will happen when a new computerized system for a firm increases the marginal productivity of its workers? A. The marginal revenue product curve will shift to the left, which will cause the wage rate to decrease. B. The supply curve will shift to the right, causing the wage rate to decrease. C. The marginal revenue product curve will shift to the right, causing the wage rate to increase. D. The supply curve will shift to the left, causing the wage rate to increase. E. The marginal revenue product curve will shift to the right and the supply curve will shift to the left, leaving the wage rate unchanged. 17. Which of the following is true about a price floor? A. It is used to correct government policy. B. It is used when the equilibrium price is too high. C. It will be located above the equilibrium price. D. It will be located below the equilibrium price E. It occurs when the stock market is too low 6

18. Which of the following is true about a price ceiling? A. It is used to correct government policy. B. It is used when equilibrium prices are too low. C. It will be located above the equilibrium price. D. It will be located below the equilibrium price. E. It is when the stock market has closed at a new high. 19. Which of the following situations best exemplifies the concept of consumer surplus? A. It refers to a consumer who no longer has any outstanding debts. B. The federal government has taken in more revenue than it has paid out in expenditures. C. A consumer pays more for a pizza than she thought it was worth at the margin of the purchase. D A consumer pays less for a pizza than she thought it was worth at the margin of the purchase. E A consumer pays exactly what she thinks the pizza is worth at the margin of the purchase TABLE 1 Number of Pair Sets Produced per Workers Two Weeks 1 40 2 70 3 95 4 115 5 130 6 130 20. Given the data in the table above, and knowing that workers are paid $1,250 every two weeks and that the pair sets are sold to retailers at $50, how many workers would be hired? A. Two B. Three C. Four D. Five E. Six 7

21. If regulation of a natural monopoly occurs where marginal cost intersects the demand curve, which of the following is correct? A. The firm would be taxed. B. The firm would realize profits. C. The firm would be subsidized. D. The price of the firm would be equal to marginal revenue. E. The firm would produce less than an unregulated natural monopoly. 22. At a market price of $19, how many batteries will the firm produce? A. 20,000 B. 29,000 C. 36,000 D. 28,000 E. Zero 8

23. If the government announces that the drinking of red grape juice reduces the risk of heart attacks, which of the following will be correct in terms of changes in quantity demanded, demand, and the price of red grape juice? Quantity demanded Demand Price of grape juice (A) (B) (C) (D) Increases No change No change Decreases Decreases No change Increases Increases Increases Decreases Increases Decreases (E) Decreases Decreases Decreases Questions 24-27 are based on the figure below: Market for Coffee Price($) Lbs. of Coffee (000) Q 24. Using the figure above, which of the following is correct for the market for coffee? A. If both the demand for and the supply of coffee increase, both the price of coffee and the quantity sold of coffee will increase. B. If both the demand for and the supply of coffee increase, the quantity of coffee sold will increase. C. If the demand for coffee decreases while the supply of coffee increases, the price of coffee will increase. D. If both the demand for and the supply of coffee decrease, both the price of coffee and the quantity sold of coffee decrease. E. If the demand for coffee increases, and the supply of coffee increases, the price of coffee will increase. 9

25. If the government provides a subsidy to the producers of coffee, which of the following will occur? A. A shift to the left of the supply curve. B. A shift to the left of the demand curve. C. A move along the supply curve to the right. D. A shift to the right of the demand curve. E. A shift to the right of the supply curve. 26. If the producers of coffee have to pay an increase in wages and fringe benefits to their workers, which of the following is correct? A. A shift to the left of the supply curve B. A shift to the left of the demand curve C. A move along the supply curve to the right D. A shift to the right of the demand curve E. A shift to the right of the supply curve 27. If the price of coffee increases, which of the following is most likely to happen? A. An increase in the amount of coffee consumers want to purchase. B. No change in the amount of coffee consumers want to purchase. C. A decrease in the amount of coffee consumers want to purchase. D. An increase (shift) in the demand for coffee. E. A decrease (shift) in the demand for coffee. 28. Which of the following best exemplifies economies of scale? A. As a firm's output decreases, average costs for production decrease. B. As a firm's output increases, average costs for production increase. C. As a firm's inputs triple, its output quadruples. D. As a firm's inputs triple, its output doubles. E. As a firm's inputs triple, its output stays constant. 29. Which of the following is correct? A. In the long run, all inputs are variable. B. In the short run, all inputs are variable. C. In the long run, supply is not able to adjust fully to changes in demand. D. In the short run, supply is able to adjust fully to changes in demand. E. A short run is any distance less than one mile. 10

30. If a firm decreases its prices by 15 percent and its total revenue increases by 30 percent, which of the following is correct? A. The price elasticity of demand is unit elastic. B. The price elasticity of demand is inelastic. C. The price elasticity of demand is elastic. D. The numerical coefficient of elasticity is equal to one. E. The numerical coefficient of elasticity is less than one. 31. If City B's planners expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is A. elastic B. unit elastic C. inelastic D. perfectly inelastic E. perfectly elastic 32. As cities thrive and per capita incomes increase, the demand for mass transit diminishes. This suggests that A. cities could raise revenue by increasing mass transit fares. B. the demand for mass transit travel is price elastic. C. automobile travel is a complement for mass transit travel. D. mass transit travel is an inferior good. E. some consumers prefer mass transit travel., 33. If Arianne claims that "price is no object" when it comes to buying handbags, then her demand curve for handbags is likely to be A. horizontal and perfectly elastic B. vertical and perfectly inelastic C. highly inelastic D. upward sloping E. unit elastic 34. Suppose Ruben truthfully tells a car salesperson that the most he is willing to pay for a new car is $15,000. The salesperson says, You re in luck; we have one on the lot for $15,000." Which of the following statements is true? A. Ruben will not buy the car. B. The car is not worth $15,000. C. Ruben gets $15,000 in consumer surplus from this deal. D. Ruben gets no consumer surplus from this deal.. E. The salesperson earns $15,000 in consumer surplus 11

35. Suppose Jones could increase his total utility from consuming cookies and ice cream bars by consuming one more ice cream bar and one less cookie. Which of the following is true? A. The marginal utility of cookies exceeds the marginal utility of ice cream bars. B. The marginal utility of ice cream bars exceeds the marginal utility of cookies. C. The marginal utility of cookies is negative. D. The marginal utility per dollar spent on ice cream bars exceeds that of cookies. E. Jones's total utility is at a maximum. 36. Which of the following would show that canned spaghetti is a substitute for macaroni and cheese? A. Calculating the cross-price elasticity and getting a positive number B. Calculating the income elasticity and getting a number less than 1 C. Calculating the income elasticity and getting a positive number D. Calculating the price elasticity of demand and getting a number greater than 1 E. Calculating the income elasticity and getting a negative number. 37. If the price of a good is zero, a consumer will A. consume all units that have positive total utility. B. consume an infinite amount of the good. C. consume all units with positive marginal utility. D. consume the entire amount supplied. E. consume until total utility reaches zero. 38. Consumers' real purchasing power rises as the price of a good falls, and they may demand more of that good. This behavior reflects the A. law of increasing marginal costs B. complement effect C. Income effect D. substitution effect E. law of diminishing marginal utility 12

Answer questions 39 and 40 using the following schedule: Quantity Demanded Quantity Supplied Price $7 0 units/day 210 units/day $6 40 units/day 170 units/day $5 80 units/day 150 units/day $4 120 units/day 120 units/day 39. According to the information in this table, the total expenditures of consumers at the market price will be which of the following? A. $240 B. $120 C. $750 D. $480 E. $400 40. If the current price were $6, there would be a A. 30-unit shortage B. 30-unit surplus C. 60-unit shortage D. 130-unit shortage E. 130-unit surplus 41. An increase in the price of gasoline will shift the demand for hybrid cars to the A. right and reduce the market price of hybrid cars.. B. left and reduce the market price of hybrid cars. C. right and increase the market price of hybrid cars. D. left and increase the market price of hybrid cars. E. perfectly inelastic vertical position. 42. If one person has the only original signed copy of The Wealth of Nations by Adam Smith, which of the following would illustrate this situation? A. A downward sloping demand curve. B. An upward sloping supply curve. C. An invisible hand. D. A perfectly vertical supply curve. E. A perfectly horizontal demand curve. 13

43. Relatively free or easy entry (low or nonexistent barriers to entry) is best matched by which of the following? A. More consumer choices, greater price elasticity of demand, more competitors. B. More consumer choices, lower price elasticity of demand, more competitors. C. More consumer choices, greater price elasticity of demand, fewer competitors. D. Fewer consumer choices, lower price elasticity of demand, fewer competitors. E. Fewer consumer choices, greater price elasticity of demand, more competitors. 44. Which of the following is an assumption used when drawing a production possibilities frontier? I. Human wants and desires are limited to what is available. II. Only two goods are considered. III. The level of technology is fixed and unchanging. A. I only B. II only C. II and III D. I and III E. I, II, and III 45. "Other things remaining the same, if the price of a good rises, the quantity supplied of that good increases." This sentence describes a A. shift of a supply curve. B. shift of the price curve. C. movement along a supply curve. D. movement along the price curve. E. movement along the quantity curve. 46. Which of the following is true? A. Average total cost = total fixed costs divided by the number of units produced B. Average total cost = average variable costs divided by the number of units produced C. Average total cost = average variable costs plus marginal cost D. Average total cost = average variable cost plus average fixed cost E. All of the above 14

47. Which of the following is true? A. Marginal social cost = marginal private cost + marginal social benefits B. Value of externality = marginal social costs C. Value of externality = marginal private costs D. Marginal social cost= marginal private cost + negative externality E. Marginal social cost = marginal private cost + positive externality 48. Gerry is a psychologist who charges his patients $125 per hour. He leaves his office early to do some shopping for his mother s birthday, spending two hours at the mall and buying her two scarves that cost $20 each. How much did these gifts truly cost? A. $40 B. $240 C. $250 D. $290 E. $330 49. If a retail store earns a normal profit this year this means that its A. Economic profit is equal to its accounting profit B. Economic profit is zero C. Economic profit is greater than the average accounting profit in other industries D. Accounting profit is zero E. Accounting profit is less than its economic profit 50. If company A produces 5,000 harmonicas per year at an average variable cost of $4 and an average fixed cost of $2 per harmonica, then the company s total cost is A. $20,000 B. $6,000 C. $10,000 D. $30,000 E. $5,000 51. If marginal cost is greater than average cost, then A. Average cost is constant B. Marginal cost is constant C. Average cost is rising D. Average cost is failing E. Marginal cost must be failing 15

52. Suppose a tractor company produces 100,000 tractors per year at its Arizona plant at an average cost of $800. It doubles its production by building an identical plant in Mississippi, which is also capable of producing at an average cost of $800. The firm has thus exhibited A. Diminishing marginal returns B. Economies of scale C. Constant returns to scale D. An upward-sloping planning curve E. Price discrimination 53. Marginal cost A. Measures the change in the AFC as more units of capital are added to production B. Is defined as the difference between total cost and total variable costs C. Rises for a time but then begins to decline when the point of diminishing returns is reached D. Declines as long as output increases E. Intersects both AVC and ATC at their minimum points Use the following cost information for the Creamy Crisp Donut Company to answer questions 54-56: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Entrepreneur's potential economic profit from the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 54. Refer to the above data. Creamy Crisp's accounting profit is A. $150,000 B. $380,000 C. $230,000 D. $294,000 E. $210,000 55. Refer to the above data. Creamy Crisp's economic profit is A. $150,000 B. $80,000 C. $230,000 D. $94,000 E. $380,000 16

56. Refer to the above data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by: A. $150,000 B. $94,000 C. $80,000 D. $230,000 E. $380,000 57. Marginal product is A. The increase in total output attributable to the employment of one more worker B. The increase in total revenue attributable to the employment of one more worker C. The increase in total cost attributable to the employment of one more worker D. Total product divided by the number of workers employed E. The decrease in total output attributable to the employment of one more worker 58. The law of diminishing return indicates that A. As extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. Because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped C. The demand for goods produced by purely competitive industries is down sloping. D. Beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction. E. None of the above 59. Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are? A. $50 B. $5,000 C. $550 D. $.50 E. 20,000 60. Accounting profits are typically A. Greater than economic profits because the former do not take explicit costs into account B. Equal to economic profits because accounting costs include all opportunity costs C. Smaller than economic profits because the former do not take implicit costs into account D. Greater than economic profits because the former do not take implicit costs into account E. None of the above 17