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

2. Agenda
Exam Developers
Scores
Areas of Strength
Areas of Weakness

3. 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 College Board Advisor Mary Kohelis, Brooke High School Chief Reader Pamela Schmitt, United States Naval Academy ETS Assessment Specialists Fekru Debebe Hwanwei Zhao
Marwa Hassan

4. Exams 57,000 U.S. Exams 14,000 International Exams
8,000 Alternate Exams

5. Mean / Standard Deviation / Max
Monopoly
Labor Markets/Min Wage
Taxes/Tax Revenue

8. Scores
2014
5 14%
4 28.5%
3 21.9%
2 16.0%
1 19.6%

9. Scores
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% 5 4 3 2 1

10. 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)

11. 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%)

12. 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%)

13. 10 Most Common Errors AP Microeconomics
2014

14. Overview of Trouble Spots
10. Showing the formula for calculating tax revenue
9. 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
Showing Profit with perfect price discrimination

15. Overview of Trouble Spots
10. Showing the formula for calculating tax revenue
9. 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
Showing Profit with perfect price discrimination

16. Overview of Trouble Spots
10. Showing the formula for calculating tax revenue
9. 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
Showing Profit with perfect price discrimination

17. 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

18. 10. Micro 3 (a), graph similar

19. 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

20. 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 Q
27.4% Answered Correctly

21. 9. Micro 1 (c)(i) Answer: Profit = (P – ATC)*Q =($10 – $20)*10
Loss of $100 Q

22. 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. Show your work.
(ii) The consumer surplus Q
24.6% Answered Correctly

23. 8. Micro 1 (c)(ii) Answer: CS = ½ b*h = ½ ($60 –$10)*10 = ½ ($50)*10
Must show calculation! Q

24. 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.

25. 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.

26. 6. Micro 2 (a)(ii) Question:
Ray’s Stable hires workers in a perfectly competitive factor market for unskilled labor.
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.

27. 6. Micro 2 (a)(ii)
W D S WF QF
Wage
WR S
MFC QR

28. (24% answered correctly)
6. Micro 2 (a)(ii)
Wage
WR S=MFC
D=MRP QR
(24% answered correctly)
Answer:
(ii) WR is equal to the horizontal supply curve for Ray’s Stables.

29. 5. Micro 1 (b)
Question: At the profit maximizing quantity from part (a)(i), is the monopolist experiencing economies of scale? Explain. Q
23.2% Answered Correctly

30. 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
23.2% Answered Correctly

31. 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
22.9% Answered Correctly

32. First identify Qperfect price discrimination = 8
Qpd

33. 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. 

34. 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.
22.5% Answered Correctly

35. 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

36. 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. Show your work.
(iii) The deadweight loss Q
22.3% Answered Correctly

37. Calculate DWL triangle:

38. 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
15.9% Answered Correctly

39. First identify Qperfect price discrimination = 8
Qpd

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

41. Questions?