Practice Test s1

AP Economics Chap 4-5 Practice Test

1. 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 price to changes in demand

2. If the price-elasticity coefficient for a good is .75, the demand for that good is described as: A. Normal B. Elastic C. Inferior D. Inelastic

3. When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. In this range of prices, demand for this product is: A. Elastic B. Inelastic C. Cross-elastic D. Unitary elastic

5. 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

8. Which is inconsistent with an elastic demand curve? A. The price-elasticity coefficient is less than 1 B. Total revenues fall when prices rise C. Buyers are relatively sensitive to price changes D. The relative change in quantity exceeds the relative change in price 9. Block's sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs forces Block's to raise price to $9 and the firm only manages to sell 460 bottles of perfume. The price elasticity of demand is: A. .33 and elastic B. 3.0 and elastic C. .33 and inelastic D. 3.0 and inelastic

Answer the next question(s) based on the following data.

18. Refer to the above data. Over which price range is the demand inelastic? A. $20-$18 B. $18-$16 C. $12-$10 D. $10-$8

19. Refer to the above data. Over which price range is the demand elastic? A. $4-$6 B. $6-$8 C. $10-$12 D. $12-$14

20. Refer to the above data. Over which price range is the demand unit-elastic? A. $18-$16 B. $16-$14 C. $14-$12 D. $12-$10

23. Along a linear downward-sloping demand curve, the price elasticity of demand will be: A. Greater than one across each price range B. Less than one across each price range C. Equal to zero across each price range D. Different across each price range

27. Total revenue falls as the price of a good is raised, if the demand for the good is: A. Elastic B. Inelastic C. Unitary elastic D. Perfectly elastic

32. Consider the demand curve above. If area 0ABC is smaller than area 0DEF, we may conclude that demand in this range is: A. Price-inelastic B. Income-inelastic C. Price-elastic D. Income-elastic 33. Demand is said to be inelastic when: A. An increase in price results in a reduction in total revenue B. A reduction in price results in an increase in total revenue C. A reduction in price results in a decrease in total revenue D. The elasticity coefficient exceeds one

41. When the price of movie tickets in a certain town was reduced, the movie-theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of A. 1.0 B. greater than 1 C. 0.5 D. Zero

51. You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. To increase total revenues, you should: A. Increase the price of the software B. Decrease the price of the software C. Hold the price of the software constant D. Increase the supply of the software

55. 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

58. Which of the following factors will make the demand for a product relatively elastic? A. There are few substitutes B. The time interval considered is long C. The good is considered a necessity D. Purchases of the good require a small portion of consumers' budgets

67. If demand for farm crops is inelastic, a good harvest will cause farm revenues to: A. Increase because of the increase in the quantity that farmers can sell B. Increase because of a downward movement along the supply curve, encouraging an increase in demand C. Decrease because of a percentage fall in price greater than the percentage increase in quantity sold D. Remain unchanged, because the increase in quantity that can be sold will be matched by an equal decrease in price 69. If the demand for a product is elastic, then: A. A higher tax on the product will generate more tax revenue B. A higher tax on the product will generate less tax revenue C. Total revenue will decrease as price decreases D. Total revenue will remain constant as price increases

77. If a product has a short-run elasticity of supply equal to zero, then an increase in the demand for the product will: A. Have no effect on price or quantity sold B. Increase price and leave quantity sold unchanged C. Increase price and reduce the quantity sold to zero D. Leave the price unchanged and reduce the quantity sold

87. Economists distinguish among the market period, the short run, and the long run by noting that: A. Supply is most elastic in the short run, and least elastic in the market period B. Demand is most elastic in the long run, and least elastic in the market period C. Supply is most elastic in the long run, and least elastic in the market period D. Supply is most elastic in the short run, and least elastic in the long run

88. To economists the main differences between "the short run" and "the long run" are that: A. The law of diminishing returns applies in the long run, but not in the short run B. In the short run all resources are fixed, while in the long run all resources are variable C. Fixed inputs are more important to decision making in the long run than they are in the short run D. In the long run all resources are variable, while in the short run at least one resource is fixed

94. The price of gold is often volatile because: A. Demand is relatively inelastic so changes in supply have a large effect on price B. Supply is relatively elastic so changes in demand have a large effect on price C. Demand is relatively elastic so changes in supply have a large effect on price D. Supply is relatively inelastic so changes in demand have a large effect on price

23. What are the two characteristics that differentiate private goods from public goods? A. Rivalry and excludability B. Negative externality and positive externality C. Marginal cost and marginal benefit D. Ownership and usage 24. Private firms can hardly produce a public good profitably because of: A. Liability rules and lawsuits B. The free-rider problem C. Shortages and surpluses D. Moral hazard and adverse selection

45. Which is an example of a negative externality? A. An increase in the value of land you own when a nearby development is completed B. The costs paid by a company to build an automated factory C. Decreased property values in a neighborhood where a disreputable nightclub is operating D. The higher price you pay when you buy a heavily advertised product

46. In a free-market economy, a product which entails a positive externality will be: A. Overproduced B. Underproduced C. Produced at the optimal level D. Associated only with goods and services provided by the government

48. If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be: A. Taxed B. Prohibited C. Subsidized D. Left alone

49. If a good that generates negative externalities were priced to take into account these negative externalities, then its: A. Price would decrease and its output would increase B. Output would increase but its price would remain constant C. Price would increase and its output would decrease D. Price would increase but its output would remain constant

50. In a market where negative externalities are associated with consumption and production, the equilibrium will not be efficient because: A. Too few resources will be allocated towards producing the good B. Firms will shut down until costs are reduced C. Costs of production will, on average, be too high D. Too much resources will be allocated towards producing the good 52. If the production of a product or service involves external benefits, then the government can improve efficiency in the market by: A. Providing a subsidy to correct for an overallocation of resources B. Providing a subsidy to correct for an underallocation of resources C. Imposing a corrective tax to correct for an overallocation of resources D. Imposing a corrective tax to correct for an underallocation of resources

61. Refer to the above supply and demand graph. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This figure suggests that there is (are): A. External benefits from the production of this product B. External costs in the production of this product C. Currently an underallocation of resources toward producing this good D. Positive externalities from producing the good 68. Refer to the above supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production? A. Supply would increase B. Demand would decrease C. Supply would decrease D. Price would increase

69. Refer to the above supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be: A. To the left of line D on the graph B. To the right of line D on the graph C. At the position of line D on the graph D. An upward-sloping line