The 2012 AP Microeconomics Exams Dave Anderson Centre College Chief Reader

Agenda Exam Developers Scores Areas of Strength Areas of Weakness Discussion

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Microeconomics Committee Chair Pamela M Microeconomics Committee Chair Pamela M. Schmitt, United States Naval Academy Michael A. Brody, Menlo School Committee Members Luis F. Fernandez, Oberlin College 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 David Anderson, Centre College ETS Assessment Specialists Fekru Debebe Hwanwei Zhao

Exams Microeconomics 59,000 Operational Exams 3,300 Alternate Exams

Mean / Standard Deviation / Max Monopoly 4.66 2.83 10 Consumer Choice Theory 2.46 1.64 6 Supply and Demand 1.59 1.29 5

Scores 2012 5 14.8% 4 28.3% 3 21.8% 2 16.3% 1 18.8%

Scores 2012 5 14.8% 4 28.3% 3 21.8% 2 16.3% 1 18.8% 2011 14.6% 25.9% 21.6% 16.0% 21.9%

Students Did Great On Monopoly Graph Marginal Revenue and Demand Curves Profit Max Quantity where MR = MC Price on Demand Curve above Q* Finding Total Utility by Summing MU Identifying Domestic Production Level in Situation with Imports and a Tariff

Most Common Errors AP Microeconomics 2012

Overview of Trouble Spots 9. Optimal Consumption Rule 7. Effect of Subsidy on Quantity Produced 6. Effect of Lump-Sum Subsidy on Deadweight Loss 5. Tariff Revenue 4. Value of Consumer Surplus 3. Cross-price Elasticity 2. Effect of Price Increase on Total Revenue Surplus-maximizing Tariff Special Mention: Labels!

9. Micro 2 (a)(ii) Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis.

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. Quantity of Bagels Marginal Utility from Bagels (utils) Quantity of Toy Cars Marginal Utility from Toy Cars (utils) 1 8 10 2 7 3 6 4 5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. $1 Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. $2 Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. $3 Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. $4 Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. $6 Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. $8 Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. $10 Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Question: Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your answer using marginal analysis. $11 Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

Or find where MUBagels/$ = MUCars/$ and all money is spent Quantity of Bagels Marginal Utility from Bagels (utils) MUBagels/$ Quantity of Toy Cars Marginal Utility from Toy Cars (utils) MUCars/$ 1 8 4 10 2 7 3.5 3 6 5 2.5 1.5

MUBagels/$ = MUCars/$ and all money is spent 32% answered correctly

8. Micro 2 (b) Question: Assume that the price of wheat, an input for the production of bagels, increases. Will Theresa’s demand for bagels increase, decrease, or not change? Explain.

(25% answered correctly) 8. Micro 2 (b) Answer: Theresa’s demand for bagels will not change because the increase in the price of wheat will affect the supply of bagels, not the demand. (25% answered correctly)

7. Micro 1 (c)(i) Question: Assume a per-unit subsidy is provided to Steverail. Will Steverail’s quantity increase, decrease, or not change? Explain.

(25% answered correctly) 7. Micro 1 (c)(i) Answer: Steverail’s quantity will increase because the MC curve will shift downward and intersect MR at a larger quantity. (25% answered correctly)

6. Micro 1 (d) Question: Assume that a lump-sum subsidy is provided to Steverail. In the short run, will deadweight loss increase, decrease, or not change? Explain.

6. Micro 1 (d) Answer: Deadweight loss will not change because the profit-maximizing quantity does not change. (20 percent answered correctly)

5. Micro 3 (b)(iii) Question: Suppose that Loriland imposes a per-unit tariff on sugar imports and the new domestic price including the tariff is $4. Calculate the total tariff revenue collected by the government. You must show your work.

Question: Suppose that Loriland imposes a per-unit tariff on sugar imports and the new domestic price including the tariff is $4. Calculate the total tariff revenue collected by the government. You must show your work.

Domestic Price 2 4 Question: Suppose that Loriland imposes a per-unit tariff on sugar imports and the new domestic price including the tariff is $4. Calculate the total tariff revenue collected by the government. You must show your work.

Domestic Price 2 4 2 x 4 = 8 20% answered correctly

4. Micro 3 (b)(ii) Question: Suppose that Loriland imposes a per-unit tariff on sugar imports and the new domestic price including the tariff is $4. Calculate the domestic consumer surplus for Loriland. You must show your work.

5 Domestic Price 10 Question: Suppose that Loriland imposes a per-unit tariff on sugar imports and the new domestic price including the tariff is $4. Calculate the domestic consumer surplus for Loriland. You must show your work.

5 10 Domestic Price 18% answered correctly ½ base x height = ½ x 5 x 10 = 25 18% answered correctly

3. Micro 2 (d) Question: Suppose that when the price of toy cars increases by 10 percent, Theresa buys 5 percent fewer toy cars and 4 percent less of a different toy, blocks. Calculate the cross-price elasticity of toy cars and blocks and indicate if it is positive or negative.

3. Micro 2 (d) Cross-price elasticity = %∆QBlocks / %∆Ptoys = -0.04 / 0.10 = -0.4

(15% answered correctly) 3. Micro 2 (d) Answer: -0.4 (15% answered correctly)

2. Micro 1 (b) Question: If Steverail raised its price above Pm identified in part (a)(i), would total revenue increase, decrease, or not change? Explain.

Question: If Steverail raised its price above Pm identified in part (a)(i), would total revenue increase, decrease, or not change? Explain.

(12% answered correctly) 2. Micro 1 (b) Answer: Total revenue would decrease because the demand is price elastic in that range of the demand curve. (Or because MR > 0). (12% answered correctly)

Price Elastic Range Inelastic range Demand Quantity Marginal Revenue Quantity Marginal Revenue Price Total Revenue One of the graphs that can be used to teach the relationship between TR and MR/Elasticity. Quantity

1. Micro 3 (c) Question: Given the world price of $2, what per-unit tariff maximizes the sum of Loriland’s domestic consumer surplus and producer surplus?

Domestic Price A common wrong answer: $3

$0 Tariff

1. Micro 3 (c) Answer: $0 7% answered correctly