The 2014 AP Microeconomics Exam Pamela Schmitt United States Naval Academy, Chief Reader

The 2014AP Microeconomics Exam

Pamela SchmittUnited States Naval Academy, Chief Reader

Confidential and Proprietary –Not for Distribution

Agenda

• Exam Developers • Scores• Areas of Strength• Areas of Weakness

Microeconomics

Committee ChairEllen Sewell, University of North Carolina at Charlotte Michael A. Brody, Menlo School

Committee MembersJoyce Jacobsen, Wesleyan UniversityMargaret Ray, Mary Washington CollegeDee Mecham, The Bishop’s SchoolSandra K. Wright, Adlai E. Stevenson High School

College Board AdvisorMary Kohelis, Brooke High School

Chief ReaderPamela Schmitt, United States Naval Academy

ETS Assessment SpecialistsFekru DebebeHwanwei ZhaoMarwa Hassan

Exams

57,000 U.S. Exams14,000 International Exams8,000 Alternate Exams

Mean / Standard Deviation / Max

1. Monopoly 4.64 2.60 102. Labor Markets/Min Wage 2.72 1.66 63. Taxes/Tax Revenue 3.24 1.81 6

Scores 20145 14%428.5% 321.9%216.0%119.6%

Scores201214.8%28.3% 21.8%16.3%18.8%

201414%28.5% 21.9%16.0%19.6%

201316.7%28.4% 20.6%15.4%18.9%

54 321

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 ErrorsAP Microeconomics

2014

Overview of Trouble Spots10. Showing the formula for

calculating tax revenue9. Calculating profits for a

monopolist that over-produces

8. Calculating CS for a monopolist that over-produces

7. Explaining that the MFC is equal to the equilibrium wage because firms in a PC factor market are wage takers

6. Illustrating that the supply curve is horizontal for a firm in a PC labor market

5. Explaining that constant returns to scale occur when ATC is constant

4. Determining that consumer surplus is zero if a monopolist perfectly price discriminates

3. Explaining the relative relationship between supply and demand elasticities and tax burden

2. Calculating Deadweight Loss if the Monopolist over-produces

1. Showing Profit with perfect price discrimination























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. Show your work.

(i) The monopolist’s profit

27.4% Answered Correctly

Q

9. Micro 1 (c)(i)Answer:

Profit = (P – ATC)*Q

=($10 – $20)*10

Loss of $100

Q

8. Micro 1 (c)(ii)Question: Now


(ii) The consumer surplus


Q

8. Micro 1 (c)(ii)Answer:

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

WF

QF

Wage

WR S

MFC

QR

6. Micro 2 (a)(ii)

Answer:

(ii) WR is equal to the horizontal supply curve for Ray’s Stables.

Wage

WR S=MFC

D=MRP

QR

(24% answered correctly)

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)Answer: The firm is

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)Answer: The consumer surplus under

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 buyers, or equally on buyers and sellers? 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 buyers, or equally on buyers and sellers? Explain.

Answer: The tax burden will fall more on buys 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


(iii) The deadweight 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 profit


• First identify Qperfect price discrimination = 8

Qpd

• Calculate profit triangle:• Profits = 1/2[($60 − $20) × 8] = $160

Questions?

Documents

The 2014 AP Microeconomics Exam Pamela Schmitt United States Naval Academy, Chief Reader