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AP Economics Sping 2014 Final Exam

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 
Factors that make it difficult for new firms to enter a market are called
a.
barriers to entry.
c.
commodities.
b.
perfect competition.
d.
start-up costs.
 

 2. 
The economic impact of a holiday fad is illustrated by
a.
a negative result on the change in demand graph.
b.
a sharp drop in the marginal product demand ratio.
c.
a rapid shift to the right in a market demand curve.
d.
a flattening of the demand curve.
 

 3. 
Which of the following statements is true, as market economies have evolved since Adam Smith’s time?
a.
Government intervention in the economy has become greater.
b.
Government intervention in the economy has decreased.
c.
Government intervention in the economy is based on job safety.
d.
Government intervention in the economy has stayed relatively the same.
 

 4. 
Which word BEST completes the following sentence? Improvements in ____ allow an economy to produce more output from the same or a smaller quantity of inputs.
a.
GDP
c.
free enterprise
b.
communication
d.
technology
 

 5. 
A legislative committee is weighing the pros and cons of a clean-air program. If it spends $1 million on the program, the air will be cleaner by 20 percent. If it spends $2 million, the air will be cleaner by 30 percent. If it spends $3 million, the air will be cleaner by 35 percent. After comparing opportunity costs and benefits at the margin, the committee agrees to fund the program with $2 million. Why did it not choose to appropriate $3 million?
a.
The air is improved by the same amount whether $2 million or $3 million is spent.
b.
It was too much to spend without a guarantee.
c.
At $3 million, the air is not improved as much as the committee would like.
d.
At $3 million, the costs are no longer worth the benefits.
 

 6. 
When shoes at a local shoe store went on sale at 50 percent off the regular price, the store sold almost every pair of shoes it had in less than a day. By the time the stock was replenished, the sale was over and very few shoes were purchased. Which of the following does this illustrate?
a.
the law of demand
c.
the law of discounts
b.
the substitution effect
d.
the income effect
 

 7. 
To which of the following categories do collective bargaining, mediation, and arbitration belong?
a.
transactions between unions and labor organizers
b.
contractual obligations of labor management
c.
negotiations between unions and company leaders
d.
settlement techniques involving a neutral mediator
 

 8. 
Which of the following explains the relationship between income effect and consumption?
a.
As incomes rise, consumption of lower-priced goods falls.
b.
As incomes fall, consumption of products and services stays the same, but people get less for their money.
c.
When the price of goods goes up, people buy more, but consumption of the same amount of goods rises.
d.
When the price of goods goes up, people get less for their money, and consumption goes down.
 

 9. 
Lily is opening a new coffee shop and is having trouble deciding on the price to charge for a cup of cappuccino. How will determining all the supply schedules of coffee shops in her market help Lily?
a.
The market supply schedule would help Lily determine the total supply of cappuccino at a certain price, based on relationships between prices and the total quantity supplied by all coffee shops in her market.
b.
The sales supply schedule would help Lily determine the maximum price for cappuccino in her market, based on relationships between consumers’ spending habits and current cappuccino prices.
c.
The market supply schedule would help Lily determine the lowest possible price she should ask for a cappuccino, based on the current year-end sales at the top-selling coffee shops in her area.
d.
The sales supply schedule would help Lily determine the minimum and maximum prices she should charge for cappuccino, based on comparisons between larger and smaller coffee shops in her market.
 

 10. 
In which way does a public disclosure law help consumers?
a.
by forcing companies to pay taxes based on the amount of goods and services they sell or buy
b.
by requiring companies to give consumers important information about their products
c.
by allowing consumers to file grievances about products and businesses with the government
d.
by requiring businesses to report business relationships that could constitute a monopoly on the marketplace
 

 11. 
Which of the following was an effect of the Taft-Hartley Act of 1947?
a.
The act attempted to equalize pay for men and women, allowing women the right to compete for equal pay in equal jobs.
b.
The act was an effort to curb union power, and mandatory union membership could be banned.
c.
The act attempted to encourage more African American membership in unions, but the right-to-work laws had the opposite effect.
d.
The act was an effort to strengthen union power, and mandatory union membership in some industries could be required.
 
 
nar004-1.jpg
 

 12. 
Study the graph showing the equilibrium point for a pizzeria. Which of the following can be said about the equilibrium price and the equilibrium quantity?
a.
The quantity supplied and the quantity demanded are equal at 200 slices per day.
b.
The quantity supplied is not equal to the quantity demanded in this market, which should be at 200 per day.
c.
The maximum quantity demanded, 350 per day, is more than the quantity supplied.
d.
The quantity demanded and the quantity supplied are equal at $2.00 per slice.
 

 13. 
Although a sole proprietorship is the least-regulated form of business organization, which type of regulation do these business owners face that may keep them from operating out of their homes?
a.
a site permit
c.
zoning laws
b.
fringe benefits
d.
eminent domain laws
 

 14. 
Centrally planned economies can work effectively toward explicitly stated goals, but which of the following is one disadvantage of such a system?
a.
These economies never produce an increase in output.
b.
It gives too many rewards for innovation.
c.
The workers control all the production factors.
d.
Its performance almost always falls short of its ideals.
 

 15. 
What is the difference between a scarcity and a shortage?
a.
A scarcity occurs when producers will not or cannot offer goods or services at the current prices, and a shortage occurs when there are limited quantities to meet unlimited wants.
b.
Scarcity is the effort that people devote to a task that meets unlimited wants, and a shortage occurs when supplies of goods or services run low.
c.
A scarcity occurs when there are limited quantities to meet unlimited wants, and a shortage occurs when a good or service is unavailable.
d.
A scarcity occurs when supplies of goods and services are suddenly attainable, and a shortage occurs when producers will not or cannot offer goods or services at the current prices.
 
 
nar006-1.jpg
 

 16. 
Look at the bar graph. How does it demonstrate the learning effect?
a.
As income increases, men and women earn the same amount.
b.
Increases in education result in higher wages.
c.
More women are in the labor force than men.
d.
Men earn more than women, regardless of education.
 

 17. 
Which of the following is a reason franchising has become popular in recent years?
a.
Because they are owned by a group of individuals for their shared benefit, franchises spread the liability.
b.
Franchise owners are free to set their own rules and operating standards, but they benefit from national ad programs.
c.
Small franchise owners enjoy a degree of control and can benefit from the support of the parent company.
d.
Franchising fees and royalties are generally low, and large profits can be made for minimal investment.
 

 18. 
Which of the following government actions is an attempt to control the high cost of rent for lower-income families, and what has been the result of this action?
a.
Price floors; the supply of apartments rose.
b.
Rent ceilings; landlords can no longer discriminate.
c.
Rent controls; high-income families are denied rental housing.
d.
Price ceilings; few renters with the greatest need benefit from the program.
 

 19. 
According to the law of supply, the higher the price,
a.
the smaller the quantity produced.
b.
the more the availability of a good is reduced.
c.
the larger the quantity produced.
d.
the more consumers are willing to pay.
 

 20. 
Why can an industry that enjoys economies of scale easily become a natural monopoly?
a.
because the market taxes less as production rises
b.
because consumers tend to appreciate monopolies
c.
because average costs drop as production rises
d.
because our government traditionally supports monopolies
 

 21. 
Which of the following is an important personal financial consideration that keeps many firms from incorporating?
a.
Corporation dividends are subject to government regulation, but dividends paid to partnerships are not.
b.
Stock is nontransferable, and stockholders therefore could lose considerable money if a company failed.
c.
Stockholders must pay personal income tax on dividends.
d.
Boards of directors must be paid according to the income of the firm.
 
 
nar007-1.jpg
 

 22. 
Compare the graphs of wages for doctors and construction workers. Which of the following accounts for the difference between the equilibrium wages for these two professions?
a.
The equilibrium wage for doctors is lower because the working conditions for construction workers involves a higher level of danger and physical stress.
b.
The supply of construction workers is relatively low and the demand is relatively high, but the supply of doctors is high relative to the demand for them.
c.
The supply of doctors is relatively low and the demand is relatively high, but the supply of construction workers is high relative to the demand for them.
d.
The equilibrium wage for construction workers is lower because doctors have a higher education level and are in the professional labor force.
 

 23. 
Mariah is buying fewer boxes of macaroni and cheese, used cars, fast-food dinners, and generic products because her income rose. This shift in the demand curve caused by Mariah’s income has resulted in
a.
an increased demand for normal goods.
b.
a decreased demand for expendable goods.
c.
a decreased demand for inferior goods.
d.
a decreased demand for tangible goods.
 

 24. 
How can competition in a scarce labor market affect wages?
a.
Wages will go up to attract workers to a firm and to keep existing workers.
b.
Wages will go down because productivity is lower.
c.
Wages will remain level because firms want to keep supplies even and costs under control.
d.
Wages will go down to discourage new, nonskilled labor from entering the labor force.
 

 25. 
Who faces limited liability for the firm’s debts in a corporation?
a.
the corporation, but not its owners
b.
the chief executive officer
c.
No one; only general liability can be faced.
d.
individual stockholders
 
 
nar001-1.jpg
 

 26. 
Which of the following statements is true about the graph of a production possibilities curve?
a.
One million tons of watermelons must be sacrificed to produce 8 million pairs of shoes.
b.
The cost of producing watermelons and shoes is roughly even on the production possibilities frontier.
c.
The cost of moving from producing no watermelons to producing 8 million tons of watermelons is 1 million pairs of shoes.
d.
It costs 2 million more tons of watermelons to produce 14 million tons of shoes.
 

 27. 
In which category do subsidies, excise taxes, and regulation belong?
a.
benefits of marginal costs
b.
limitations on imports
c.
effects of rising costs
d.
government’s influence on supply
 

 28. 
Why have minorities historically tended to earn lower salaries and wages than their white counterparts, despite nondiscrimination laws?
a.
There are fewer minorities in the labor force.
b.
Whites have had access to more education and work experience.
c.
Minorities must compete with women, who are flooding the labor force.
d.
There are foreign workers taking their jobs.
 

 29. 
Which of the following is NOT a factor affecting elasticity?
a.
availability of substitutes
b.
the good’s price range
c.
whether the good is a necessity or a luxury
d.
the good’s relative importance
 

 30. 
What are some of the basic principles of free enterprise?
a.
research institutions, government restriction, and stock qualifications
b.
absolute organizations, low prices, and quality control indexes
c.
interest groups, disclosure laws, public interest, and negative regulation
d.
profit motive, legal equality, private property rights, free contract, and competition
 
 
Marginal Product of Labor
Labor
(number of
workers)
Output
(beanbags
per hour)
Marginal
product
of labor
0
0
—
1
4
4
2
10
6
3
17
7
4
23
6
5
28
5
6
31
3
7
32
1
8
31
–1
 

 31. 
According to the graph of marginal product of labor for a company that makes beanbags, which of the following situations is created when the fourth through seventh workers are hired?
a.
diminishing marginal returns
b.
increasing marginal returns
c.
negative marginal returns
d.
marginal product of labor specialization
 

 32. 
According to the graph, which of the following happens when an eighth person is hired at the beanbag company?
a.
A negative marginal return is created.
b.
The output of beanbags is 28 per hour.
c.
A positive marginal product of labor is created.
d.
The output of beanbags stays the same.
 

 33. 
Which of the following is a good indicator of economic stability?
a.
foreign policy
c.
general price levels
b.
job-related safety
d.
general foreign trade
 

 34. 
The purpose of the free enterprise system is to
a.
give consumers freedom to make economic choices.
b.
create political campaign slogans.
c.
eliminate economic choices.
d.
give consumers goods and services free of charge.
 

 35. 
By the end of the summer, Jason had saved enough money for college from his job as a waiter. He even had some money left over. Although he wanted both, he decided to buy a DVD player rather than a digital camera. Which of the following is the opportunity cost in this scenario?
a.
the DVD player
c.
the job
b.
college
d.
the digital camera
 

 36. 
Which of the following BEST explains why rationing, not a price-based system, was used during World War II?
a.
Rationing restricted production to a few products during World War II so that suppliers and manufacturers could concentrate on supporting the war effort.
b.
With rationing, consumers were able to control the distribution of food and goods while the government determined which products would be sold.
c.
Unlike price-based systems, rationing more severely restricted consumers’ buying habits, and it temporarily shifted distribution of food and goods to the military.
d.
Unlike a price-based system, the temporary price controls of World War II rationing helped ease shortages and guaranteed every American a minimum standard of living.
 

 37. 
In a free market economy, the factor market involves which type of exchange?
a.
Firms loan money to households to purchase capital.
b.
The goods and services that households produce are purchased by firms.
c.
Households purchase factors of production from firms.
d.
Firms purchase factors of production from households.
 

 38. 
Which of the following is one market trend that results when a monopolistically competitive firm starts earning profits well above its costs?
a.
The firm would eventually go out of business because demand would decrease.
b.
The firm would try to lure 100 percent of customers by flooding the market with defective products.
c.
The firm would become an oligopolistic firm because it has effectively eliminated the competition and now dominates the market alone.
d.
Fierce competition would encourage rivals to create new ways to differentiate their products and lure customers to them.
 

 39. 
Which word can be used twice to BEST complete this sentence? When supply ____, prices fall, and quantity demanded ____ to reach a new equilibrium.
a.
decreases
c.
reverses
b.
increases
d.
levels
 

 40. 
What is an oligopoly?
a.
a market structure in which a single firm dominates the market
b.
a market structure in which two firms have a price war
c.
an agreement by a formal organization of producers to coordinate prices and production
d.
a market structure in which a few large firms dominate the market
 

 41. 
In which kind of business organization should you participate if you can afford to lose only the amount of your initial investment?
a.
dual partnership
c.
limited partnership
b.
sole proprietorship
d.
general partnership
 
 
Market Demand Schedule
Price of a
slice of pizza
Quantity
demanded per day
$.50
300
$1.00
250
$1.50
200
$2.00
150
$2.50
100
$3.00
50
 

 42. 
Franco’s Pizzeria sells slices of pizza for $2.00. According to the market demand schedule and assuming ceteris paribus, what happens when Franco’s raises the price to $2.50 a slice?
a.
The quantity demanded increases to 250 a day.
b.
The quantity demanded falls from 150 a day to 100 a day.
c.
The quantity demanded falls from 100 slices a day to 50 slices a day.
d.
The quantity demanded per day stays the same.
 

 43. 
Improved technology helps create a higher standard of living for future generations by
a.
providing additional goods and services.
b.
creating specialized jobs for workers.
c.
reducing the number of unemployed workers.
d.
preventing drastic shifts in general price levels.
 

 44. 
How does a society answer the three economic questions about the production and consumption of goods and services?
a.
Its answer is based solely on current environmental regulation.
b.
Its answer is based on the importance it attaches to various economic goals and societal values.
c.
Its answer is based on the importance it attaches to the stock market.
d.
Its answer is based on recent technological advances.
 

 45. 
Which one of the following relies on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it?
a.
a centrally planned economy
c.
a market economy
b.
a mixed economy
d.
a traditional economy
 

 46. 
When two giant automakers, Chrysler Corporation and Daimler-Benz, merged to form a single corporation in 1998, which type of merger was it?
a.
horizontal
c.
conglomerate
b.
vertical
d.
parallel
 

 47. 
What is the difference between a general partnership and a limited liability partnership (LLP)?
a.
In a general partnership, all partners are exempt from personal liability.
b.
In an LLP, all partners are limited from personal liability in certain situations.
c.
In a general partnership, only one partner has unlimited personal liability for the firm’s actions.
d.
In an LLP, only one partner is required to be a general partner.
 

 48. 
As a sole proprietor, Jessica took out a loan to buy equipment for her in-home business. If Jessica’s business does not make enough money to pay back her loan, she will have to sell personal property to cover her outstanding obligation. Which of the following conditions affects sole proprietors but not other business organizations?
a.
obligatory property
c.
personal obligation
b.
proprietary liability
d.
unlimited personal liability
 

 49. 
Self-interest is the motivating force driving the free market. Which of the following is the regulating force?
a.
incentive
c.
group interest
b.
the invisible hand
d.
competition
 
 
nar005-1.jpg
 

 50. 
What has happened to employment since 1986, according to the graph?
a.
There is a decrease in the nonlabor work force.
b.
Production of goods and services both continue to progress rapidly.
c.
Production of services is increasing faster than production of goods.
d.
Production of services is increasing at an equal rate with production of goods.
 

 51. 
A firm sells natural gas to a city for one price and sells the same gas to an outlying village at another price. What is this practice called?
a.
oligopoly
c.
differentiation
b.
price discrimination
d.
monopoly
 

 52. 
Beginning in the 1800s, labor unions have had a strong influence on the nation’s economy. What event and industry initiated the labor union movement in the United States?
a.
the Civil War and importing
b.
the American Revolution and farming
c.
the Industrial Revolution and manufacturing
d.
the Spanish-American War and exporting
 

Matching
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
factors of production
g.
growth
b.
production possibilities frontier
h.
opportunity cost
c.
production possibilities graph
i.
underutilization
d.
trade-offs
j.
efficiency
e.
shortage
k.
services
f.
scarcity
 

 53. 

 the basic economic condition of all goods and services
 

 54. 

 land, labor, and capital
 

 55. 

 the line that shows different production possibilities for an economy
 

 56. 

 temporary lack of one or more goods
 

 57. 

 the most attractive alternative that is given up when an economic decision is reached
 

 58. 

 representation of the possible ways an economy could use resources
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
efficiency
g.
shortage
b.
goods
h.
opportunity cost
c.
trade-off
i.
underutilization
d.
production possibilities graph
j.
labor
e.
scarcity
k.
factors of production
f.
services
 

 59. 

 use of fewer resources than the economy is capable of using
 

 60. 

 most desirable alternative given up when people choose one course of action over another
 

 61. 

 physical objects that can be exchanged
 

 62. 

 representation of alternative ways to use an economy’s resources
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
elasticity of demand
f.
total revenue
b.
substitution effect
g.
normal good
c.
law of demand
h.
inferior good
d.
complement
i.
demand curve
e.
substitute
j.
ceteris paribus
 

 63. 

 a good that replaces another demanded good
 

 64. 

 a good that is always used with another good
 

 65. 

 a good that consumers will demand more of when their incomes increase
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
economies of scale
f.
price war
b.
trust
g.
antitrust laws
c.
franchise
h.
market power
d.
oligopoly
i.
differentiation
e.
barrier to entry
j.
perfect competition
 

 66. 

 a market structure in which a large number of firms all produce the same product
 

 67. 

 the right to sell a good or service within an exclusive market
 

 68. 

 an illegal grouping of companies that discourages competition
 

 69. 

 a market structure in which a few large firms dominate a market
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
market failure
f.
public disclosure laws
b.
cash transfers
g.
business cycle
c.
public policy
h.
interest group
d.
externality
i.
microeconomics
e.
welfare
j.
poverty threshold
 

 70. 

 an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
free enterprise
f.
socialism
b.
continuum
g.
transition
c.
incentive
h.
traditional economy
d.
safety net
i.
authoritarian
e.
collective
j.
standard of living
 

 71. 

 an economic system that relies on habit, custom, or ritual to decide questions of consumption and production of goods and services
 

 72. 

 an economic system that permits the conduct of business with minimal government intervention
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
standard of living
f.
communism
b.
privatize
g.
laissez faire
c.
economic system
h.
collective
d.
self-interest
i.
product market
e.
safety net
j.
factor payments
 

 73. 

 the method used by society to produce and distribute goods and services
 

 74. 

 the doctrine that government generally should not intervene in the marketplace
 

 75. 

 the income people receive for supplying such things as land, labor, or capital
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
subsidy
h.
increasing marginal returns
b.
supply schedule
i.
diminishing marginal returns
c.
supply curve
j.
marginal revenue
d.
elasticity of supply
k.
marginal product of labor
e.
excise tax
l.
marginal cost
f.
law of supply
m.
market supply schedule
g.
variable cost
 

 76. 

 a level of production in which the marginal production decreases with new investment
 

 77. 

 the cost of producing one more unit of a good
 

 78. 

 the additional income from selling one more unit of a good
 
 
Identifying Key Terms
Match each term with the correct statement below.
a.
gross domestic product
f.
macroeconomics
b.
free rider
g.
poverty threshold
c.
public interest
h.
market failure
d.
private sector
i.
welfare
e.
in-kind benefits
j.
public disclosure laws
 

 79. 

 the study of the behavior and decision making of entire economies
 

 80. 

 the total value of all final goods and services produced in a particular economy
 



 
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