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AP Microeconomics study materials
AP Microeconomics study resources

AP Microeconomics practice questions

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Question 1Multiple Choice

A bakery can produce either 100 loaves of bread or 50 cakes with its fixed resources. What is the opportunity cost of producing one cake?

  1. One-half loaf of bread
  2. Two loaves of bread Correct answer.
  3. Fifty loaves of bread
  4. One cake

Explanation

Opportunity cost per cake equals loaves forgone divided by cakes gained: 100/50 = 2 loaves. The tradeoff reflects the slope of the production possibilities frontier.

Question 2Multiple Choice

On a production possibilities frontier that is bowed outward, the frontier is concave to the origin because

  1. technology improves along the frontier
  2. opportunity cost increases as more of a good is produced Correct answer.
  3. resources are equally suited to producing both goods
  4. the economy is operating inefficiently inside the curve

Explanation

A bowed-out PPF reflects increasing opportunity cost, which arises because resources are not equally productive in all uses. As production shifts toward one good, increasingly less-suited resources must be used.

Question 3Multiple Choice

Which of the following best describes a normative economic statement?

  1. A claim about what ought to be Correct answer.
  2. A statement about what is
  3. A statement that can be tested with data
  4. A prediction about market prices

Explanation

Normative statements express value judgments about how things should be and cannot be confirmed or refuted by evidence alone. Positive statements describe what is and are testable.

Question 4Multiple Choice

The law of demand states that, all else equal, as the price of a good rises,

  1. quantity demanded rises
  2. supply falls
  3. demand increases
  4. quantity demanded falls Correct answer.

Explanation

The law of demand describes an inverse relationship between price and quantity demanded, holding other factors constant. A change in price moves along the demand curve.

Question 5Multiple Choice

An increase in the price of a substitute good will most likely cause the demand curve for the original good to

  1. become vertical
  2. shift right Correct answer.
  3. shift left
  4. remain unchanged

Explanation

When a substitute becomes more expensive, consumers switch toward the original good, so demand for it increases and the curve shifts right. Price of a related good is a demand shifter.

Question 6Multiple Choice

A technological improvement in the production of a good will cause its supply curve to

  1. shift right, lowering price Correct answer.
  2. remain unchanged
  3. shift left, raising price
  4. shift right, raising price

Explanation

Better technology lowers production costs at every quantity, shifting supply right. A rightward supply shift lowers equilibrium price and raises equilibrium quantity.

Question 7Multiple Choice

If the price of a good is currently above the equilibrium price, the market will experience

  1. a surplus, pushing price down Correct answer.
  2. equilibrium, with no pressure
  3. a surplus, pushing price up
  4. a shortage, pushing price up

Explanation

At a price above equilibrium, quantity supplied exceeds quantity demanded, creating a surplus. Sellers cut prices to clear inventory, moving price toward equilibrium.

Question 8Multiple Choice

The price elasticity of demand between two points is calculated as the percentage change in quantity demanded divided by

  1. total revenue
  2. the change in price
  3. the percentage change in price Correct answer.
  4. the percentage change in income

Explanation

Price elasticity of demand measures responsiveness of quantity demanded to price, using percentage changes in both variables. Dividing by percentage change in price makes the measure unit-free.

Question 9Multiple Choice

If demand for a product is price inelastic and the price rises, total revenue will

  1. increase Correct answer.
  2. fall to zero
  3. decrease
  4. stay the same

Explanation

With inelastic demand, quantity falls proportionally less than price rises, so total revenue increases. Revenue moves in the same direction as price when elasticity is less than one.

Question 10Multiple Choice

A perfectly elastic demand curve is drawn as

  1. a downward-sloping line
  2. a vertical line
  3. an upward-sloping line
  4. a horizontal line Correct answer.

Explanation

Perfectly elastic demand means consumers will buy any quantity at one price but nothing at a higher price, giving a horizontal curve. Elasticity is infinite at every point.

Question 11Multiple Choice

A price ceiling set below the equilibrium price will result in

  1. no change in the market
  2. an increase in quantity supplied
  3. a surplus of the good
  4. a shortage of the good Correct answer.

Explanation

A binding price ceiling holds price below equilibrium, so quantity demanded exceeds quantity supplied, producing a shortage. Non-binding ceilings set above equilibrium have no effect.

Question 12Multiple Choice

A price floor set above the equilibrium price will most likely create

  1. a surplus Correct answer.
  2. an increase in quantity demanded
  3. a shortage
  4. a downward shift in supply

Explanation

A binding price floor keeps price above equilibrium, so quantity supplied exceeds quantity demanded, creating a surplus. The floor prevents price from falling to clear the market.

Question 13Multiple Choice

A consumer's total utility rises as more units are consumed but at a decreasing rate. This illustrates

  1. constant total utility
  2. diminishing marginal utility Correct answer.
  3. increasing marginal utility
  4. negative marginal utility

Explanation

Diminishing marginal utility means each additional unit adds less to total utility than the previous one. Total utility still rises as long as marginal utility is positive.

Question 14Multiple Choice

A consumer maximizes utility subject to a budget constraint by choosing the bundle where

  1. marginal utility per dollar is equal across goods Correct answer.
  2. total utility is zero
  3. the price of each good is equal
  4. marginal utility of each good is equal

Explanation

Utility is maximized when the last dollar spent on each good yields the same marginal utility, i.e., MUx/Px = MUy/Py. Otherwise, reallocating spending could raise total utility.

Question 15Multiple Choice

The marginal cost curve intersects the average total cost curve at the

  1. maximum point of average total cost
  2. origin
  3. minimum point of average total cost Correct answer.
  4. minimum point of marginal cost

Explanation

Marginal cost pulls average total cost toward it: when MC is below ATC, ATC falls, and when MC is above ATC, ATC rises. Thus MC crosses ATC at ATC's minimum.

Question 16Multiple Choice

In the short run, a firm's total fixed cost is

  1. equal to marginal cost
  2. independent of the level of output Correct answer.
  3. zero when output is zero
  4. always equal to total variable cost

Explanation

Fixed costs do not vary with output and must be paid even when output is zero. They are constant over the relevant range of production in the short run.

Question 17Multiple Choice

A firm should shut down in the short run if price falls below

  1. average fixed cost
  2. average total cost
  3. minimum average variable cost Correct answer.
  4. marginal cost

Explanation

If price cannot cover average variable cost, the firm loses less by shutting down and paying only fixed costs. The shutdown point is the minimum of the average variable cost curve.

Question 18Multiple Choice

In a perfectly competitive market, an individual firm's demand curve is

  1. vertical
  2. upward sloping
  3. downward sloping
  4. horizontal at the market price Correct answer.

Explanation

A price-taking firm can sell any quantity at the market price but none above it, so its demand is perfectly elastic and horizontal. Marginal revenue equals price.

Question 19Multiple Choice

A profit-maximizing firm in a perfectly competitive market produces where

  1. price equals marginal cost Correct answer.
  2. marginal cost is minimized
  3. price equals average total cost
  4. total revenue is maximized

Explanation

Profit is maximized where marginal revenue equals marginal cost; for a price taker, marginal revenue equals price. Producing where P = MC ensures no additional unit adds more to revenue than to cost.

Question 20Multiple Choice

A monopolist faces a downward-sloping demand curve, which means its marginal revenue

  1. equals price at all quantities
  2. is greater than price
  3. is constant
  4. is less than price for all positive output Correct answer.

Explanation

To sell more, a monopolist must lower price on all units, so marginal revenue falls below price. The MR curve lies below the demand curve.

Question 21Multiple Choice

Compared with a perfectly competitive market, a profit-maximizing monopolist typically produces

  1. a lower quantity at a higher price Correct answer.
  2. a higher quantity at a lower price
  3. a higher quantity at a higher price
  4. the same quantity at the same price

Explanation

Restricting output and raising price lets a monopolist capture more surplus, creating deadweight loss. The result is a lower quantity and higher price than the competitive outcome.

Question 22Multiple Choice

A key feature of an oligopoly market structure is

  1. many small firms with identical products
  2. strategic interdependence among a few firms Correct answer.
  3. free entry and exit with zero long-run profit
  4. a single seller with no close substitutes

Explanation

Oligopoly consists of a few firms whose decisions depend on one another, making strategic behavior central. Each firm's profit depends on rivals' choices.

Question 23Multiple Choice

In a labor market, an increase in the demand for the final product the workers produce will most likely

  1. leave wages unchanged
  2. decrease the demand for labor
  3. decrease the supply of labor
  4. increase the demand for labor Correct answer.

Explanation

Labor demand is derived from the demand for the output workers produce. Higher product demand raises the value of workers' marginal product, shifting labor demand right and raising wages.

Question 24Multiple Choice

A negative externality, such as pollution from production, causes the market to

  1. achieve allocative efficiency automatically
  2. produce more than the socially optimal quantity Correct answer.
  3. produce less than the socially optimal quantity
  4. charge a price equal to marginal social cost

Explanation

With a negative externality, private marginal cost is below marginal social cost, so the market overproduces relative to the social optimum. A corrective tax or regulation can reduce output toward the efficient level.

Question 25Multiple Choice

A good that is both nonrival in consumption and nonexcludable is classified as

  1. a private good
  2. a public good Correct answer.
  3. a common resource
  4. a club good

Explanation

Public goods are nonrival (one person's use does not reduce another's) and nonexcludable (nonpayers cannot be kept out). National defense is a standard example.

Question 26Multiple Choice

The basic economic problem of scarcity arises because

  1. some countries are poorer than others
  2. firms choose to produce too few goods
  3. governments fail to set prices correctly
  4. human wants are unlimited while productive resources are limited Correct answer.

Explanation

Scarcity is the universal condition in which unlimited wants exceed the limited resources available to satisfy them, so choices and trade-offs are unavoidable. It is not a condition of poverty or policy failure.

Question 27Multiple Choice

A student gives up a part-time job paying $200 per week in order to attend classes full time. The $200 of forgone wages is best described as

  1. a fixed cost of the school
  2. an explicit cost of education
  3. the opportunity cost of attending classes Correct answer.
  4. a sunk cost

Explanation

Opportunity cost is the value of the next best alternative forgone when a choice is made. The wages the student could have earned are the alternative given up to attend classes.

Question 28Multiple Choice

A point located inside a production possibilities curve represents

  1. an unattainable combination of output
  2. an efficient use of all resources
  3. an inefficient use of resources Correct answer.
  4. a combination requiring trade with another economy

Explanation

Points on the curve are productively efficient, points outside are unattainable with current resources, and points inside indicate that some resources are idle or misallocated.

Question 29Multiple Choice

If the price of coffee rises and, as a result, consumers buy more tea, the two goods are

  1. complements
  2. normal goods
  3. inferior goods
  4. substitutes Correct answer.

Explanation

Substitutes are goods used in place of one another, so a rise in the price of one increases demand for the other. Complements would show the opposite relationship.

Question 30Multiple Choice

An increase in the number of buyers in a market will most likely

  1. shift the supply curve to the right
  2. shift the demand curve to the right Correct answer.
  3. shift the demand curve to the left
  4. cause a movement along the demand curve

Explanation

The number of buyers is a demand determinant, so more buyers increase quantity demanded at every price and shift demand rightward. A change in the good's own price would instead cause movement along the curve.

Question 31Multiple Choice

If the price of a good falls from $10 to $8 and quantity supplied falls from 100 to 80 units, the price elasticity of supply (using the midpoint method) is approximately

  1. 2.0
  2. 4.0
  3. 1.0 Correct answer.
  4. 0.5

Explanation

The midpoint method gives a percentage change in quantity of 20/90 and a percentage change in price of 2/9, so elasticity equals (20/90)/(2/9) = 1.0, which is unit elastic.

Question 32Multiple Choice

A tax placed on sellers of a good will cause the supply curve to shift

  1. right by more than the amount of the tax
  2. left by the full amount of the tax Correct answer.
  3. left by less than the amount of the tax
  4. right by the full amount of the tax

Explanation

An excise tax raises sellers' costs at every quantity, shifting supply upward or leftward by the per-unit tax amount. The market price then rises by less than the tax because the burden is shared with buyers.

Question 33Multiple Choice

When a tax is imposed on a market, the deadweight loss is larger when

  1. the tax is collected from buyers rather than sellers
  2. the good is a necessity rather than a luxury
  3. demand and supply are both relatively elastic Correct answer.
  4. demand and supply are both relatively inelastic

Explanation

Deadweight loss grows with the reduction in quantity traded, and quantity falls more when demand and supply are elastic. Statutory incidence does not determine the size of the loss.

Question 34Multiple Choice

A consumer buys only two goods. If the marginal utility per dollar spent on the last unit of good X exceeds that of good Y, the consumer should

  1. buy more of both goods
  2. keep purchases unchanged because utility is already maximized
  3. buy more X and less Y to increase total utility Correct answer.
  4. buy more Y and less X to increase total utility

Explanation

Utility is maximized when marginal utility per dollar is equal across goods. Shifting spending toward the good with the higher marginal utility per dollar raises total utility until the ratios are equal.

Question 35Multiple Choice

A firm's total product rises from 50 to 65 units when it hires a fourth worker. The marginal product of the fourth worker is

  1. 4 units
  2. 15 units Correct answer.
  3. 65 units
  4. 50 units

Explanation

Marginal product is the change in total product divided by the change in labor, here 65 minus 50, which equals 15 units.

Question 36Multiple Choice

When marginal cost is below average variable cost, average variable cost must be

  1. rising
  2. equal to marginal cost
  3. falling Correct answer.
  4. constant

Explanation

Marginal cost pulls the average in the direction of the marginal value. When the marginal unit costs less than the current average, producing it lowers the average.

Question 37Multiple Choice

A firm's total cost is $500 when it produces 10 units and $540 when it produces 11 units. Marginal cost of the eleventh unit is

  1. $540
  2. $4
  3. $40 Correct answer.
  4. $49

Explanation

Marginal cost is the change in total cost divided by the change in quantity, here $540 minus $500, which equals $40.

Question 38Multiple Choice

A firm operating in a perfectly competitive market will earn positive economic profit in the short run when

  1. marginal revenue equals marginal cost
  2. price equals marginal cost
  3. price exceeds average total cost Correct answer.
  4. price exceeds average variable cost but is below average total cost

Explanation

Economic profit per unit is price minus average total cost, so profit is positive only when price is above average total cost at the chosen output.

Question 39Multiple Choice

If a competitive firm's price is above the minimum of its average variable cost but below the minimum of its average total cost, the firm should

  1. exit the industry before the end of the period
  2. continue producing in the short run despite an economic loss Correct answer.
  3. raise its price above average total cost
  4. shut down immediately

Explanation

A firm covers its variable costs and part of its fixed costs when price exceeds minimum average variable cost, so producing in the short run minimizes losses. Shutdown occurs only when price falls below that minimum.

Question 40Multiple Choice

For a single-price monopolist, the profit-maximizing rule is to produce where

  1. marginal revenue equals price
  2. marginal revenue equals marginal cost Correct answer.
  3. price equals marginal cost
  4. average total cost is minimized

Explanation

Any firm maximizes profit by producing where marginal revenue equals marginal cost, and the monopolist then reads the price from the demand curve. Because price exceeds marginal revenue, price will exceed marginal cost.

Question 41Multiple Choice

A monopolist that practices perfect price discrimination will

  1. produce the same quantity as a single-price monopolist
  2. set a single price equal to marginal cost
  3. earn zero economic profit
  4. produce the allocatively efficient quantity and capture all consumer surplus Correct answer.

Explanation

By charging each buyer the maximum willing to pay, the monopolist faces a marginal revenue curve equal to demand and produces where price equals marginal cost, eliminating deadweight loss while capturing all consumer surplus.

Question 42Multiple Choice

Compared with a competitive market, a monopoly that charges a single price creates deadweight loss because

  1. it charges a price below marginal cost
  2. it always produces at a higher average total cost
  3. it produces where price exceeds marginal cost, so some mutually beneficial trades do not occur Correct answer.
  4. it faces a horizontal demand curve

Explanation

The monopolist restricts output below the level where price equals marginal cost, so units valued more than their cost go unproduced. The lost surplus is the deadweight loss.

Question 43Multiple Choice

In monopolistic competition, firms earn zero economic profit in long-run equilibrium because

  1. advertising is prohibited
  2. products are identical across firms
  3. entry and exit drive price to equal average total cost Correct answer.
  4. each firm produces at minimum average total cost

Explanation

Free entry and exit mean profits attract entrants and losses drive exits until each remaining firm's demand curve is tangent to its average total cost curve. At that tangency, price equals average total cost and economic profit is zero.

Question 44Multiple Choice

In a prisoners' dilemma game, the outcome in which both players confess and receive long sentences is called

  1. a cooperative outcome that maximizes joint payoff
  2. a dominant strategy equilibrium that is not Pareto optimal Correct answer.
  3. a Nash equilibrium that is Pareto optimal
  4. a mixed-strategy equilibrium

Explanation

Each player has a dominant incentive to confess regardless of the other's choice, so the Nash equilibrium is mutual confession. That outcome is worse for both than mutual silence, so it is not Pareto optimal.

Question 45Multiple Choice

A firm that is the only buyer of labor in a local market is called

  1. a monopolist
  2. a monopsonist Correct answer.
  3. an oligopolist
  4. a price taker in the labor market

Explanation

A monopsonist is a single buyer facing an upward-sloping labor supply curve, so hiring more workers requires a higher wage for all workers. This makes the marginal factor cost exceed the wage.

Question 46Multiple Choice

The demand for labor is described as a derived demand because it depends on

  1. the wage rate set by the government
  2. the supply of labor
  3. the productivity of capital alone
  4. the demand for the product the labor helps produce Correct answer.

Explanation

Firms hire workers to produce goods and services, so the demand for labor is derived from the demand for those outputs. A higher product demand raises the value of workers' marginal product and shifts labor demand rightward.

Question 47Multiple Choice

A firm hiring labor in a competitive labor market will maximize profit by hiring until

  1. marginal revenue product is zero
  2. the wage equals marginal revenue product Correct answer.
  3. the wage equals total revenue
  4. the wage exceeds marginal revenue product

Explanation

Marginal revenue product is the extra revenue from hiring one more worker, and profit is maximized when that value equals the wage. Hiring beyond that point adds more to cost than to revenue.

Question 48Multiple Choice

A positive externality exists when

  1. a firm's private cost exceeds its social cost
  2. a third party bears a cost from a transaction
  3. the government subsidizes a firm
  4. a third party benefits from a transaction without paying for it Correct answer.

Explanation

An externality is a spillover effect on people not involved in a transaction. A positive externality confers an uncompensated benefit on third parties, leading markets to underproduce the good.

Question 49Multiple Choice

A common resource, such as a fishery open to all, tends to be overused because it is

  1. excludable but not rival
  2. both excludable and rival
  3. rival but not excludable Correct answer.
  4. neither rival nor excludable

Explanation

Common resources are rival because one person's use reduces availability to others, but they are nonexcludable, so no one can be charged or barred. This combination creates the tragedy of the commons and overuse.

Question 50Multiple Choice

A government wants to correct a negative externality in production. The most direct Pigouvian remedy is to

  1. set a price ceiling below the equilibrium price
  2. increase the number of firms in the industry
  3. impose a per-unit tax equal to the marginal external cost Correct answer.
  4. provide a per-unit subsidy to producers

Explanation

A Pigouvian tax equal to marginal external cost makes producers internalize the spillover, shifting supply toward the socially optimal quantity. Subsidies and price controls do not address an external cost.