### 2014 AP Microeconomics Exam

```The 2014
AP Microeconomics Exam
Pamela Schmitt
Agenda
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Confidential and Proprietary –
Not for Distribution
Microeconomics
Committee Chair
Ellen Sewell, University of North Carolina at Charlotte
Michael A. Brody, Menlo School
Committee Members
Joyce Jacobsen, Wesleyan University
Margaret Ray, Mary Washington College
Dee Mecham, The Bishop’s School
Sandra K. Wright, Adlai E. Stevenson High School
Mary Kohelis, Brooke High School
Pamela Schmitt, United States Naval Academy
ETS Assessment Specialists
Fekru Debebe
Hwanwei Zhao
Marwa Hassan
Exams
57,000 U.S. Exams
14,000 International Exams
8,000 Alternate Exams
Mean / Standard Deviation / Max
1. Monopoly
2. Labor Markets/Min Wage
3. Taxes/Tax Revenue
4.64
2.72
3.24
2.60
1.66
1.81
10
6
6
Scores
5
4
3
2
1
2014
14%
28.5%
21.9%
16.0%
19.6%
Scores
5
4
3
2
1
2014
14%
28.5%
21.9%
16.0%
19.6%
2013
16.7%
28.4%
20.6%
15.4%
18.9%
2012
14.8%
28.3%
21.8%
16.3%
18.8%
Students Did Great On
• Equilibrium Price and Quantity
- QE and PE with Supply and Demand in a
product market (85% in Q1)
- WE and QE with Supply and Demand in a
labor market (74% in Q2)
Students Did Great On
• Understanding that after the imposition of
a tax, quantity will fall
- QT< QE (80%)
• Understanding that the price the buyers
pay after a tax is imposed will be higher
than the equilibrium price
- PB > PE , PB is on the Demand Curve at QT
(69%)
Students Did Great On
• Understanding that an effective minimum
wage is above the equilibrium wage
- Wmin> WE (73%)
• Monopoly Graph
– Finding the profit maximizing quantity where
MR = MC (68%)
– Price on Demand Curve above Q* (60%)
10 Most Common Errors
AP Microeconomics
2014
Overview of Trouble Spots
10. Showing the formula for
calculating tax revenue
5. Explaining that constant
returns to scale occur when
9. Calculating profits for a
ATC is constant
monopolist that over4. Determining that consumer
produces
surplus is zero if a monopolist
8. Calculating CS for a
perfectly price discriminates
monopolist that over3. Explaining the relative
produces
relationship between supply
7. Explaining that the MFC is
and demand elasticities and
equal to the equilibrium
tax burden
wage because firms in a PC
factor market are wage
if the Monopolist overtakers
produces
6. Illustrating that the supply
curve is horizontal for a firm 1. Showing Profit with perfect
price discrimination
in a PC labor market
Overview of Trouble Spots
10. Showing the formula for
calculating tax revenue
5. Explaining that constant
returns to scale occur when
9. Calculating profits for a
ATC is constant
monopolist that over4. Determining that consumer
produces
surplus is zero if a monopolist
8. Calculating CS for a
perfectly price discriminates
monopolist that over3. Explaining the relative
produces
relationship between supply
7. Explaining that the MFC is
and demand elasticities and
equal to the equilibrium
tax burden
wage because firms in a PC
factor market are wage
if the Monopolist overtakers
produces
6. Illustrating that the supply
curve is horizontal for a firm 1. Showing Profit with perfect
price discrimination
in a PC labor market
Overview of Trouble Spots
10. Showing the formula for
calculating tax revenue
5. Explaining that constant
returns to scale occur when
9. Calculating profits for a
ATC is constant
monopolist that over4. Determining that consumer
produces
surplus is zero if a monopolist
8. Calculating CS for a
perfectly price discriminates
monopolist that over3. Explaining the relative
produces
relationship between supply
7. Explaining that the MFC is
and demand elasticities and
equal to the equilibrium
tax burden
wage because firms in a PC
factor market are wage
if the Monopolist overtakers
produces
6. Illustrating that the supply
curve is horizontal for a firm 1. Showing Profit with perfect
price discrimination
in a PC labor market
10. Micro 3 (c)
Question: Assume that gasoline is sold in a
competitive market in which demand is
relatively inelastic and supply is relatively
elastic:
(c) Using the labeling on your graph, explain
how to calculate the total tax revenue
collected by the government.
31.4% of students answered this correctly
10. Micro 3 (a), graph similar
10. Micro 3 (c)
Question: Assume that gasoline is sold in a
competitive market in which demand is
relatively inelastic and supply is relative
elastic:
(c) Using the labeling on your graph, explain
how to calculate the total tax revenue
collected by the government.
Answer: (PB - PS ) * QT = 2 * QT
Key is making sure PB and PS are not equal to
PE
9. Micro 1 (c)(i)
Question: Now
assume that the
monopolist
produces 10 units.
Using the numbers
given in the graph
calculate each of
the following.
(i) The monopolist’s
profit
Q
9. Micro 1 (c)(i)
Profit = (P – ATC)*Q
=(\$10 – \$20)*10
Loss of \$100
Q
8. Micro 1 (c)(ii)
Question: Now
assume that the
monopolist
produces 10 units.
Using the numbers
given in the graph
calculate each of
the following.
(ii) The consumer
surplus
Q
8. Micro 1 (c)(ii)
CS = ½ b*h
= ½ (\$60 –\$10)*10
= ½ (\$50)*10
CS = \$250
Must show
calculation!
Q
7. Micro 2 (b)
Question:
Ray’s Stable hires workers in a perfectly
competitive factor market for unskilled labor.
(b) Is the marginal factor cost of unskilled labor for
Ray’s Stable greater than, less than or equal to
WE (equilibrium wage for the labor market found in
(a))? Explain.
24% of students answered this correctly.
7. Micro 2 (b)
Question:
(b) Is the marginal factor cost of unskilled labor for
Ray’s Stable greater than, less than, or equal to
WE? Explain.
Answer: The marginal factor cost is equal to WE
because the firm is a wage taker in the labor
market.
6. Micro 2 (a)(ii)
Question:
Ray’s Stable hires workers in a perfectly
competitive factor market for unskilled labor.
(a) Using correctly labeled side-by-side graphs for
the labor market and Ray’s Stable, show each
of the following.
(ii) The wage paid by Ray’s Stable and
the quantity of unskilled labor
hired, labeled WR and QR,
respectively.
6. Micro 2 (a)(ii)
W D
S
Wage
WR
WF
S
MFC
QF
QR
6. Micro 2 (a)(ii)
(ii) WR is
equal to the
horizontal
supply curve
for Ray’s
Stables.
Wage
WR
S=MFC
D=MRP
QR
5. Micro 1 (b)
Question: At the
profit maximizing
quantity from part
(a)(i), is the
monopolist
experiencing
economies of
scale? Explain.
Q
5. Micro 1 (b)
not experiencing
economies of
scale. Explain:
LRATC is not
downward sloping.
The ATC remains
constant as output
increases.
Q
4. Micro 1 (e)(ii)
Question: Suppose
the monopolist
perfectly price
discriminates and
chooses the
quantity that
maximizes profit.
Determine the
dollar value of
each of the
following:
(i) The consumer
surplus
• First identify Qperfect price discrimination = 8
Qpd
4. Micro 1 (e)(ii)
perfect price discrimination is equal to
zero.
This results from understanding that
perfect price discrimination implies each
consumer is charged their marginal
benefit (MB) or the maximum price the
consumer is willingness to pay.
Since CS is the difference between the MB
and the price, consumer surplus is zero.
3. Micro 3 (d)
Question: Assume that gasoline is sold in a
competitive market in which demand is
relatively inelastic and supply is relatively
elastic.
(d) Will the tax burden fall entirely on buyers,
entirely on sellers, more on buyers and less
on sellers, more on sellers and less on
Explain.
3. Micro 3 (d)
(d) Will the tax burden fall entirely on buyers,
entirely on sellers, more on buyers and less
on sellers, more on sellers and less on
Explain.
and less on sellers because the demand
curve is more inelastic than the supply curve.
Key is the comparison between elasticity of
supply and demand.
22.5% of students answered this correctly
2. Micro 1 (c)(iii)
Question: Now
assume that the
monopolist
produces 10 units.
Using the numbers
given in the graph
calculate each of
the following.
loss
Q
• Calculate DWL triangle:
DWL = 1/2 (\$20-\$10) × (10-8) = \$10
1. Micro 1 (e)(i)
Question: Suppose
the monopolist
perfectly price
discriminates and
chooses the
quantity that
maximizes profit.
Determine the
dollar value of
each of the
following:
(i) The monopolist’s 15.9% Answered Correctly
profit
• First identify Qperfect price discrimination = 8
Qpd
• Calculate profit triangle:
• Profits = 1/2[(\$60 − \$20) × 8] = \$160
Questions?
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