AP Microeconomics : Competition
Study concepts, example questions & explanations for AP Microeconomics
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Example Questions
Example Question #71 : Competition
Which of the following is an example of a private good?
A free blog
A public park
A bicycle
Public radio
Fireworks
A bicycle
A private good is rivalrous, which means that one person's use of the good reduces the availability of the good for others, and excludable, which means that individuals can be effectively excluded from consuming the good. The only choice that fits both descriptions is the bicycle.
Example Question #72 : Competition
An oligopolistic industry would most likely have
substantial barriers to entry
no barriers to entry
a large number of firms
one firm with no close rivals
price-taking behavior
substantial barriers to entry
An oligopolistic industry is dominated by a small number of firms. Oligopolies are typically caused by significant barriers to entry, which enable a few firms to dominate the industry.
Example Question #73 : Competition
The market for pizza is currently in equilibrium. If the demand for pizza increases and its supply decreases, what happens to the price and quantity of pizza?
Price increases but the change in quantity is ambiguous
Quantity increases but the change in price is ambiguous
Price and quantity both decrease
The change in price and quantity is ambiguous
Price and quantity both increase
Price increases but the change in quantity is ambiguous
As its supply decreases and its demand increases, the price of pizza will definitely increase. However, the change in quantity is ambiguous and depends on which effect is stronger.
Example Question #74 : Competition
Which of the following is an example of a public good?
A neighborhood park
A laptop
Satellite TV
A truck
A movie theatre
A neighborhood park
A public good is non-rival, which means that one person's consumption of a good does not affect another person's consumption of the good, and non-excludable, which means that a person cannot be prevented from consuming the good. The only answer that is non-rival and non-exculdable is the neighborhood park.
Example Question #75 : Competition
Which of the following is NOT a property of perfectly competitive markets?
The goods are nearly identical.
The barriers to entry are low.
At market equilibrium, price is greater than marginal revenue.
There are a large number of firms in the market.
In the long run, firms are expected to earn no profits.
At market equilibrium, price is greater than marginal revenue.
When a a perfectly competitive market is in equilibrium, the marginal revenue curve is a horizontal line at the price level in contrast to monopolies, where the marginal revenue is below price.
All of the other answer choices are key characteristics of perfectly competitive markets.
Example Question #71 : Perfectly Competitive Output Markets
Energy can be generated using either coal or natural gas as an input. If the supply of coal is interrupted, what are the most likely effects on the price and quantity of natural gas traded on the open market? Assume a perfectly competitive market with no government policy intervention.
No change
Price decreases, Quantity decreases
Price decreases, Quantity increases
Price increases, Quantity increases
Price increases, Quantity decreases
Price increases, Quantity increases
Coal and natural gas are substitutes for each other based on the description given in the question. Therefore, an interruption in the supply of coal will lead to an increase in the demand for natural gas. This will increase both the price and quantity of natural gas.
Example Question #72 : Perfectly Competitive Output Markets
Iron ore is an important input in steelmaking. If the cost of iron ore increases, what are the likely effects on the equilibrium price and quantity in the market for steel? Assume a perfectly competitive market.
Price increases, Quantity decreases
No effect
Price decreases, Quantity decreases
Price increases, Quantity increases
Price decreases, Quantity increases
Price increases, Quantity decreases
An increase in the cost of iron ore will make steel production more expensive.
Because production costs increase, steelmakers will be less willing to produce steel at any given price. Therefore, the market price of steel will increase, and less steel will be traded on the market.
Example Question #73 : Perfectly Competitive Output Markets
Which of the following scenarios will result in an increase in the market price for iron ore?
The completion of a rail network allows iron ore producers to significantly reduce the cost of transporting the product to market.
The wages paid to workers extracting iron ore increase, and at the same time a construction boom increases the demand for iron.
A significant new deposit of iron ore is discovered.
The cost of other building materials, such as lumber and concrete, falls.
The wages paid to workers extracting iron ore fall as a depressed construction market reduces the demand for iron.
The wages paid to workers extracting iron ore increase, and at the same time a construction boom increases the demand for iron.
We need to choose the scenario that results in a higher equilibrium price. This will result from an increase in demand and a decrease in supply. Only one answer choice matches this scenario. The other choices create a lower equilibrium price or an ambiguous change.
Example Question #72 : Competition
Which of the following is NOT a characteristic of a perfectly competitive market?
The quality and characteristics of a good or service do not vary between different suppliers.
Entry barriers limit the number of new firms that can enter the market.
Buyers and sellers do not incur transactions costs when trading on the market.
Firms sell at a price point such that marginal cost equals marginal revenue.
Buyers and sellers have perfect information on the quality of the good or service exchanged.
Entry barriers limit the number of new firms that can enter the market.
Perfectly competitive markets are characterized by their LACK of entry and exit barriers, which makes it easy for firms to enter or leave the market as conditions change.
Example Question #74 : Perfectly Competitive Output Markets
Which of these actions most obviously produces a positive externality?
Planting an herb garden in your private backyard
Cutting to the front of the line at the movies
Remodeling your kitchen
Parking rusty, old cars on your front lawn
Keeping your yard clean and maintained
Keeping your yard clean and maintained
Keeping your yard clean and maintained is a positive quality that residents and visitors in your neighborhood will also benefit from. Some of the other answers are also positive, but they only have a private benefits, not public ones.
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