AP Micro Unit 2 Review

A downward sloping demand curve can be explained by

I. diminishing marginal utility

II. diminishing marginal returns

III. substitution effect

IV. the income effect

• I only

• II only

• I and III only

• I and IV only

• I, III, and IV only

If hot dogs are an inferior good, an increase in income will result in

• an increase in the quantity demanded for hot dogs

• an increase in the demand for hot dogs

• a decrease in the quantity demanded for hot dogs

• a decrease in the demand for hot dogs

• no change in the demand for hot dogs

Assume that coal is a normal good. If the price of coal increases and the quantity sold increases, which of the following is consistent with these observations?

• the price of oil, a substitute for coal, increases

• a wage increase was given to coal miners

• new machinery made coal mining more efficient

• consumers' incomes fell

• the demand curve is inelastic

During a football game, it starts to rain and the temperature drops. The senior class, which runs the concession stand and is studying economics, raises the price of coffee from 50 cents to 75 cents a cup. They sell more than ever before. Which answer explains this?

• the supply of coffee increased

• the demand curve for coffee was elastic

• the supply of coffee decreased

• the demand for coffee increased

• the demand curve for coffee was inelastic

If the cost of producing automobiles increases, the price, equilibrium quantity, and consumer surplus will most likely change in which of the following ways?

• P increases, Q increases and CS increases

• P increases, Q decreases, CS increases

• P increases, Q decreases, CS decreases

• P decreases, Q increases, CS decreases

• P decreases, Q decreases, CS decreases

During the 1990s, the price of VCRs fell about 30 percent, and QUANTITY SOLD decreased by the same amount. The DEMAND for VCRs must

• be inelastic

• be elastic

• be unit elastic

• have shifted to the right

• have shifted to the left

Which of the following will occur if a legal price floor is placed on a good below its free-market equilibrium?

• surpluses will develop

• shortages will develop

• underground markets will develop

• the equilibrium price will ration the good

• the quantity sold will increase

A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about the price elasticity of demand for concert tickets?

• demand is inelastic

• demand is elastic

• demand is unit elastic

• demand is perfectly inelastic

• demand is perfectly elastic

If there is a legal price ceiling imposed, which will occur?

• shortage

• surplus

• demand will increase

• none of these

• all of these

Which of the following statements about price controls is true?

• a price ceiling causes a shortage if the ceiling price is above the equilibrium price

• a price floor causes a surplus if the price floor is below the equilibrium price

• a price ceiling causes an incrase in demand if the ceiling price is set below the equilibrium price

• a price ceiling causes a decrease in demand if the price floor is set above the equilibrium price

• price ceilings and price floors result in a mis-allocation of resources.