AP Micro Microeconomics: Factor Markets and Market Failures 2

Question 1

A monopsonist in the labor market hires fewer workers than a competitive firm because it:

Accepted Answer

Faces an upward-sloping labor supply curve and must raise wages for all workers

Answer

A monopsonist faces a rising supply curve, so hiring one more worker raises wages for all, making the marginal factor cost exceed the wage and causing under-hiring.

Question 2

If the government imposes a per-unit tax on a good with a negative externality, the tax should equal:

Accepted Answer

The marginal external cost at the socially optimal quantity

Answer

A Pigouvian tax equal to the marginal external cost at the social optimum shifts supply to internalize the externality.

Question 3

Which condition characterizes the profit-maximizing input choice for a firm in a competitive factor market?

Accepted Answer

MRC = MRP

Answer

Firms maximize profit by hiring until the marginal resource cost equals the marginal revenue product.

Question 4

Public goods are characterized by non-rivalry and non-excludability. Which of the following is the best example?

Accepted Answer

National defense

Answer

National defense is consumed by all citizens simultaneously (non-rival) and no citizen can be excluded from its protection (non-excludable).

Question 5

When a positive externality exists in a market, the private market will:

Accepted Answer

Underproduce relative to the social optimum

Answer

Positive externalities mean social benefit exceeds private benefit, so consumers underpay and the market underproduces the good.

AP Practice Test

AP Practice Test

AP Micro Microeconomics: Factor Markets and Market Failures 2