AP Micro Unit 2 Exam Review

What will most likely result if the price of apples decreases?

• The quantity of apples demanded will increase.

• The supply of apples will decrease.

• The demand for apples will increase.

• The quantity of apples supplied will decrease.

Answer explanation

According to the law of demand, all else being

equal, when the price of a good or service increases, the quantity demanded decreases. Choice A is the best answer because it is the inverse of the question being asked.

If Michael’s average yearly income increases, and it is observed that his demand for steak has increased, then steak must be considered

• an inferior good

• a normal good

• a determinant of demand

• a determinant of supply

Answer explanation

A normal good is a good that increases in demand as income increases. Since Michael received an increase in his yearly salary, there was an increase in demand for steak, and steak is an expensive meat product, it is a normal good. Choice A is incorrect because an inferior

good is a good for which demand decreases as income increases. Choice E is incorrect because eating steak is not a necessity. Choices C and D are incorrect because eating steak does not affect the determinants of supply and demand.

Suppose it is necessary for tin to be used in the production of guitar strings. If the price of tin decreases and all other variables are constant, what will most likely result?

• The demand for silver will increase.

• The quantity demanded for guitars will decrease.

• The demand for guitars will increase.

• The supply of guitar strings will increase.

Answer explanation

Tin is a factor of production used in the production of guitar strings. Firms will produce more guitar strings if the costs related to the production of the product decrease. If the price of tin decreases, then producers are willing and able to produce more due to a decrease in a factor of production.

According to the law of demand,

• as the price of a good or service increases, the demand will shift to the right

• as the price of a good or service increases, the demand will shift to the left

• there is an inverse relationship between quantity demanded

  of a good or service and the price of that good or service

• as prices for a good or service increase, consumers will begin to use substitute goods

Answer explanation

Remember that people will buy more of a good if the price is low and less of a good if the price is high. This illustrates an inverse relationship. According to the law of demand and all else being equal, when the price of a good or service increases, the quantity demanded decreases.

According to the law of supply,

• as the price of a good or service decrease, the supply will decrease

• as the price of a good or service increases, the quantity supplied will increase

• as the price of a good or service increases, the quantity demanded will increase

• as the price of a good or service increases, the quantity demanded will decrease

Answer explanation

The law of supply represents the willingness of

producers to produce goods at all price levels. The law of supply shows a direct relationship between price and quantity of goods supplied. Therefore, if the price of a good increases, producers are more willing to produce an increased quantity of goods.

A hurricane destroys a significant supply of bananas

in 2011. As a result, the price of bananas increases.

What prediction may be made regarding the supply of

apples, a substitute good, when its market is in

equilibrium?

• The price rises, and the supply will increase.

• The quantity supplied will increase.

• The price falls, and the supply will decrease.

• The price falls, and the quantity supplied will

  decrease.

Answer explanation

The question asks for only the quantity supplied, so any question that refers to price may be eliminated. Choice B is the best answer because if the price of a good increases, its substitutes will experience an increase in the

quantity demanded.

Which of the following situations will cause the

demand curve for chicken, a normal good, to shift to

the left?

• Consumer incomes decrease.

• Consumer incomes increase.

• The price of steak decreases.

• There is a decrease in the cost of raising chickens on a farm.

Answer explanation

Chicken is a normal good. Remember that a

normal good is a good that increases in demand as income increases. If the demand curve for chicken shifted to the left, then consumer income would show an overall decrease.

The equilibrium price is established

• at the next price above where the demand and supply curves

  intersect

• when the quantity supplied equals the quantity

  demanded

• at the next price below where the demand and

  supply curves intersect

• when you take the difference between the two

  lowest points plotted on the demand and supply

  curves

Answer explanation

All else being equal, in a free market system, the

price of a good or service is determined at the equilibrium point where supply and demand intersect.

Which of the following could explain the movement

from point B to point A?

• An increase in the price of the good

• An increase in consumer income

• An increase in the price of a complementary good

• An increase in the price of a substitute good

Answer explanation

The graph represents the inverse relation stated

in the law of demand. The graph represents movement from Point B to Point A. This illustrates that the quantity demanded decreased due to an increase in price.

Doherty Industries is a leading producer of an energy

drink. Which of the following will cause Doherty

Industries to offer more of the product at all possible

sale prices?

• A competitor lowers the price of the product.

• The price of a key ingredient increases.

• The price of a key ingredient decreases.

• The demand for the energy drink decreases.

Answer explanation

If the price of a key ingredient decreases, then the cost of production will decrease. This will lead Doherty Industries to offer more of the product at all possible price levels. This illustrates the law of supply.