- Which of the following would best complete a
short definition of economics? “Economics is
the study of.. .”
(A) how unlimited resources are allocated
between scarce wants.
(B) how money is circulated through the
economy.
(C) how corporations maximize the share price
of their stock.
(D) how nations trade goods and services in a
global marketplace.
(E) how scarce resources are allocated to satisfy
unlimited wants.
- Suppose the price elasticity of demand for ciga-
rettes is less than one. When an excise tax is
imposed on cigarette production, it changes the
price, quantity, and consumer spending in
which of the following ways?
PRICE QUANTITY SPENDING
(A) Decrease Increase Increase
(B) Decrease Decrease Decrease
(C) Increase Decrease Decrease
(D) Increase Decrease Increase
(E) Increase Increase Increase
- Which of the following is true of a price floor?
(A) The price floor shifts the demand curve to
the left.
(B) An effective floor creates a shortage of the
good.
(C) The price floor shifts the supply curve of
the good to the right.
(D) To be an effective floor, it must be set above
the equilibrium price.
(E) The government sets the price floor to assist
consumers who are exploited at the equilib-
rium price.
- You are told that the income elasticity for
DVDs is +1.5. This means that
(A) a 10 percent increase in income produces a
15 percent increase in consumption of
DVDs. DVDs are a normal luxury good.
(B) a 10 percent increase in income produces a
15 percent increase in consumption of
DVDs. DVDs are an inferior good.
(C) a 10 percent increase in income produces a
15 percent decrease in consumption of
DVDs. DVDs are an inferior good.
(D) a 10 percent increase in the price of DVDs
produces a 15 percent decrease in consump-
tion of DVDs. DVDs are a price elastic good.
(E) a 10 percent increase in the price of DVDs
produces a 15 percent decrease in consump-
tion of DVDs. DVDs are a price inelastic
good.
- Which of the following causes the supply curve
of paper to shift to the left?
(A) Paper producers expect lower paper prices
in the months ahead.
(B) The price of pencils, a complement to
paper, increases.
(C) Improvements in the technology used to
produce paper.
(D) Household income falls.
(E) Environmental concerns reduce the yearly
amount of timber that can be harvested.
- Using the diagram above, which of the follow-
ing might have caused the outward movement
of the production possibility frontier?
(A) A decrease in the availability of fertile farmland
(B) A plague of destructive grasshoppers
(C) An increase in the productivity of the labor
force
(D) A severe and long-lasting drought
(E) A decline in the rate of technological
improvements
Corn
Computers
AP Microeconomics Practice Exam 1 ‹ 171
