AP Microeconomics Quiz

What does the Production Possibilities Curve (PPC) illustrate?

• The relationship between price and quantity demanded

• Scarcity and opportunity cost

• The elasticity of supply

• The effects of taxation

Which statement describes opportunity cost?

• The monetary cost of an item

• The time spent to produce a good

• The next best alternative given up when a choice is made

• The profit gained from trade

What is a key characteristic of a free market economy?

• Centralized decision-making by the government

• Government-imposed price controls

• Voluntary exchange and private property rights

• Equal distribution of income

In the Circular Flow Model, which of the following is an example of a factor of production?

• Wages

• Goods sold in the market

• Labor

• Taxes

If the price of a substitute good increases, what happens to the demand for the original good?

• It decreases

• It stays constant

• It increases

• It becomes perfectly elastic

The price elasticity of demand for a good is 0.8. What does this indicate about the good?

• It is a necessity

• It is perfectly elastic

• It is unit elastic

• It is a luxury

What is consumer surplus?

• The total revenue gained by producers

• The difference between what consumers are willing to pay and what they actually pay

• The additional utility from consuming one more unit

• The total benefit of production

What is the result of a government-imposed price ceiling below equilibrium price?

• A surplus of goods

• An increase in producer surplus

• A shortage of goods

• An increase in supply

What does the law of diminishing marginal returns state?

• As more input is added, total output always increases

• Adding more input increases output at a decreasing rate beyond a certain point

• Production costs always decrease in the short run

• Marginal costs and average costs are unrelated

What is an example of an economy of scale?

• A firm reduces per-unit costs by increasing production

• A firm experiences higher costs as output increases

• A firm decreases wages to workers

• A firm specializes in a single product