AP®︎ Microeconomics: Unit 5 Practice Test
Prepare for your quiz, test, or the AP exam with focused practice questions on Unit 5 of AP Microeconomics – Factor Markets.
Questions List
Unit 5 (All Topics)
Question 1 Topic 5.1Easy
This question tests the following: PRD-4.A.1
What are the factors of production?
What You’re Being Tested On:
Explore the learning objectives taken directly from the College Board’s AP® Microeconomics Curriculum. Ensure you’re prepared for the exact topics covered on the AP® exam, in-class tests, and quizzes, and gain confidence in your mastery of the material.
Unit 5: Factor Markets
This unit covers factor markets, including how resources like labor are priced and allocated based on marginal productivity.
Topic 5.1: Introduction to Factor Markets
Learning Objective: PRD-4.A
a. Define (using graphs where appropriate) key terms and concepts relating to factor markets. b. Explain (using graphs where appropriate) the relationship between factors of production, firms, and factor prices. c. Calculate (using data from a graph or table where appropriate) the marginal revenue product and marginal resource cost.
Essential Knowledge: PRD-4.A.1
Factors of production (labor, capital, and land) respond to factor prices (wages, interest, and rent), and employers’ (firms’) decision to hire is based on the productivity of the factors, output price, and cost of the factor.
Essential Knowledge: PRD-4.A.2
The quantity of labor demanded is negatively related to the wage rate, while the quantity of labor supplied is positively related to the wage rate in a given labor market, other things constant.
Topic 5.2: Changes in Factor Demand and Factor Supply
Learning Objective: PRD-4.B
Explain (using graphs where appropriate) firms’ and factors’ responses to changes in incentives and constraints.
Essential Knowledge: PRD-4.B.1
Changes in the determinants of labor demand, such as the output price and the productivity of the worker, cause the labor demand curve to shift.
Essential Knowledge: PRD-4.B.2
Changes in the determinants of labor supply (such as immigration, education, working conditions, age distribution, availability of alternative options, preferences for leisure, and cultural expectations) cause the labor supply curve to shift.
Topic 5.3: Profit-Maximizing Behavior in Perfectly Competitive Factor Markets
Learning Objective: PRD-4.C
a. Define (using graphs as appropriate) the characteristics of perfectly competitive factor markets. b. Explain (using graphs where appropriate) the profit-maximizing behavior of firms buying labor (with other inputs fixed) in perfectly competitive markets. c. Calculate (using data from a graph or table where appropriate) measures representing the profit-maximizing behavior of firms buying labor (with other inputs fixed) in perfectly competitive markets.
Essential Knowledge: PRD-4.C.4
Marginal revenue product of a factor of production is the change in total revenue divided by the change in that factor of production, which is also equal to the marginal physical product of that factor multiplied by the marginal revenue ( MRP = MP × MR ). Firms in a perfectly competitive output market will have marginal revenue product of labor that is equal to the value of the marginal product of labor ( VMPL = MPL × P ) because marginal revenue for each unit of output is equal to price.
Essential Knowledge: PRD-4.C.1
In a perfectly competitive labor market, the wage is set by the market and each firm hires the quantity of workers, where the marginal factor (resource) cost (wage) equals the marginal revenue product of labor. A typical firm may be a perfect competitor in the labor market even if it is an imperfect competitor in its output markets.
Essential Knowledge: PRD-4.C.2
A typical firm hires labor in a perfectly competitive labor market as long as the marginal revenue product of labor is greater than the market wage.
Essential Knowledge: PRD-4.C.3
To minimize costs or maximize profits, firms allocate inputs such that the last dollar spent on each input yields the same amount of marginal product.
Topic 5.4: Monopsonistic Markets
Learning Objective: PRD-4.D
a. Define (using graphs as appropriate) the characteristics of monopsonistic markets. b. Explain (using graphs where appropriate) the profit-maximizing behavior of firms buying labor (with other inputs fixed) in monopsonistic markets. c. Calculate (using data from a graph or table where appropriate) measures representing the profit-maximizing behavior of firms buying labor (with other inputs fixed) in monopsonistic markets.
Essential Knowledge: PRD-4.D.1
In a monopsonistic labor market, a typical firm hires additional labor as long as the marginal revenue product is greater than the marginal factor (resource) cost (the wage of a new unit of labor plus the wage increase given to all existing labor).
Essential Knowledge: PRD-4.D.2
When a typical firm hires additional workers in a monopsonistic labor market, the marginal factor (resource) cost is greater than the supply price of labor.
