AP Microeconomics Final

A firm's demand for labor is known as a derived demand because

• the firm gains utility from hiring more labor

• the wage rate paid to workers depends on the demand for labor

• the amount of labor demanded depends on the amount of capital invested

• the amount of labor demanded depends on the demand for the firm's product

• the firm will benefit from hiring additional labor

If Zeta, a single producer, had exclusive control of a key resource needed to produce good Z, a likely result would be which of the following?

• Good Z would be produced in a perfectly competitive market.

• Slight differences in output would lead to good Z being in a monopolistically competitive market.

• There would be a barrier to entry, and Zeta would have a monopoly on good Z.

• Only a few firms would produce good Z, so there would be an oligopoly.

• Zeta must have decreasing returns to scale and operate as a natural monopoly in producing good Z.

The relationship in the graph above best illustrates the economic concept of 4MIF20.

• opportunity cost

• diminishing marginal utility in consumption

• diminishing marginal returns in production

• production possibilities

• comparative advantage

Which of the following describes a significant challenge in regulating natural monopolies?

• The lack of complete information available to regulators, leading to potential manipulation by natural monopolies and lower-quality services for consumers.

• Regulators possessing all necessary information to set prices accurately, ensuring efficient operations and high-quality services from natural monopolies.

• Financial losses incurred by natural monopolies when prices are set at marginal cost, necessitating government subsidies to cover the difference between average total cost and marginal cost.

• The inherent inefficiency of natural monopolies due to their monopolistic position, requiring government intervention to break up monopolies and promote competition.

Assume that many boats have free and open access to fishing in the waters of a country. Which of the following statements is true? 4MIF2 - With the availability of fish for all consumers, there is a positive externality; therefore, governments need to encourage greater use of the common areas with more production and increased consumption. - Over time, fishing operations will voluntarily leave the market as a result of increased competition. - There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations. - The waters of a country are a rare example of a resource that is not scarce. Therefore, standard economic analysis does not apply. - The advantage of allowing free and open access to fishing is to limit the harm from a negative externality where too few fish are currently caught.

• With the availability of fish for all consumers, there is a positive externality; therefore, governments need to encourage greater use of the common areas with more production and increased consumption.

• Over time, fishing operations will voluntarily leave the market as a result of increased competition.

• There will be a tendency for fishing operations to overfish, reduce the stock of fish, and limit the future availability of fish for succeeding generations.

• The waters of a country are a rare example of a resource that is not scarce. Therefore, standard economic analysis does not apply.

• The advantage of allowing free and open access to fishing is to limit the harm from a negative externality where too few fish are currently caught.

A chemical plant pollutes a river that serves as the water supply for a nearby town. From an economist's point of view, pollution from the plant should be reduced until the 4MIF3

• marginal benefit from the cleaner water is equal to the marginal cost of making the water cleaner

• marginal benefit from cleaner water is maximized

• total benefit from cleaner water is zero

• total benefit from cleaner water is equal to the total cost of making the water cleaner

• total benefit from cleaner water is maximized

A monopsonistic labor market has a 4MIF4

• single employer of labor

• horizontal labor supply curve

• labor force of identically skilled workers

• backward bending labor supply curve

• demand curve for labor that is perfectly elastic

Which of the following statements accurately describes possible outcomes for firms in monopolistic competition in the short run?

• Firms in monopolistic competition always make supernormal profits in the short run.

• Losses are impossible for firms in monopolistic competition in the short run due to slight downward-sloping demand curves.

• Firms in monopolistic competition can experience either supernormal profits, losses, or normal profits in the short run.

• Normal profit is guaranteed for firms in monopolistic competition in the short run regardless of market conditions.

In the current labor market, suppose that the wage rate for accountants is significantly higher than the wage rate for economists. In the long run, if you observed that the wage rate for economists rose while the wage rate for accountants fell, which of the following would best explain your observation? 4MIF6

• The supply of economists must have increased, and the supply of accountants must have decreased.

• The supply of economists must have decreased, and the supply of accountants must have increased.

• The demand for economists must have increased, and the supply of accountants must have decreased.

• The demand for economists must have decreased, and the supply of accountants must have increased.

• The demand for both economists and accountants must have decreased.

In a market with two firms, a firm that has a dominant strategy will do which of the following?

• Maintain that strategy independent of the strategies chosen by its competitor.

• Adjust its strategies based on the strategies chosen by its competitor.

• Make the first move, and wait to see whether its competitor responds to the move.

• Keep its competitor guessing about its next move.

• Collude with its competitor to reduce uncertainty.