Official AP Microeconomics 2013 Thread

Test Preparation AP History & Social Sciences
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<p>1) a. Just draw a typical AD/AS graph. Make sure they intersect with LRAS. Also make sure to mark the price level and output as noted.
b. Increase in savings shifts money supply right which lowers interest rate. Just draw the loanable funds market graph and you’ve got it.
c. i. Expenditures increase, because lower IR makes people willing to take more loans to invest and such.
ii. Economic growth will increase, as investment spending is a part of GDP.
d. i. I said that demand for the euro stays the same, as interest rates only affect money supply.
ii. Money supply decreases with increasing interest rate, so the Euro appreciates. (Show this in a foreign exchange market graph)
e. If the euro appreciates relative to the US dollar, then the dollar depreciates. A depreciating dollar is more attractive to foreign consumers, so exports increase. This gives the US a current account surplus.</p>

<p>I’ll put up my answers for the other two when I get home.</p>

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<p>I agree with everything you said except for D part i. I believe there are 2 options for this one. There’s what you said, but you can also think of it as the demand of the euro increased and therefore raised the real interest rate.</p>

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<p>Demand for the euro doesn’t affect the real interest rate at all. Interest rate is a determinant of foreign exchange money supply, but demand is independent and is completely unaffected by anything on the European side.
I also just realized that this is the micro thread. I’ll post everything in macro thread. I’ll probably post what I got for the micro test as well.</p>

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<p><a href=“http://media.collegeboard.com/digitalServices/pdf/ap/apcentral/ap13_frq_microeconomics.pdf[/url]”>http://media.collegeboard.com/digitalServices/pdf/ap/apcentral/ap13_frq_microeconomics.pdf&lt;/a&gt;&lt;/p&gt;

<p>1) a. i. Q1
ii. P3
iii. The rectangle acP1P3
iv. The triangle acf</p>

<p>b. i. Q3
ii. The area 0Q3fP4 (Prices match demand curve with price discrimination)</p>

<p>c. i. Q3
ii. The triangle P1fP3
(Side-note: With price discrimination there is no consumer surplus. That’s the main difference between the situations in b and c.)</p>

<p>d. Zero economic profit. P = ATC at all points, and profit = (P-ATC) * Q.
e. Inelastic. At point f, you have to increase price to maximize revenue, which is a property of inelastic demand curves. I wrote out a full explanation of this elsewhere that I don’t feel like copying. =P</p>

<p>2) a. Advertise. They should do this regardless, since it’s their dominant strategy, so the information on LaPizza is unnecessary.
b. There is none. The choice that gives them the most profit is dependent on PieCrust’s decision, and dominant strategies require that they are better regardless of the other firm’s decision. For full credit, I would throw in some dollar values in there.
c. (UNSURE OF THIS ONE)
I said i. $250 and ii. $200 because I was taught that the other firm, if no dominant strategy, plays Tit-for-Tat, so LaPizza would advertise. However, I am pretty unsure about this, so I would get a second opinion.
d. Subtract $60 wherever a firm is advertising. For example, the bottom left box is $180 and $440.</p>

<p>3) a. Make sure to draw the MARKET. I know a few people that went to a firm graph once they saw “perfectly competitive.” Just a market in equilibrium, labeling equilibrium quantity and price.
b. i. A supply curve to the left of the normal supply curve.
ii. Identical to the demand curve.
iii. Absolutely no clue. Not taught this.
c. i. Less than. Positive externalities are underproduced by markets.
ii. Increase. You already have DWL due to underproduction, a ban will just underproduce more.</p>

<p>So yeah, help with 2c and 3biii would be greatly appreciated.</p>

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<p>For 3 on the FRQ, isn’t there no Deadweight loss because I looked at a past FRQ with an externality question and it said there was no DWL. In that case, shouldn’t there be no change at all for 3 c ii since there was no DWL in the first place?</p>

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<p>I said there wasn’t DWL, but I’m really not sure. Market equilibrium is definitely inefficient, but because of overproduction, not underproduction. There isn’t any typical market activity that will lead to market overproduction, so I don’t know what to compare it to.</p>

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<p>Is 1C) ii) P1fP4?</p>

<p>I’m fairly certain about 2C.
2C) The Nash equilibrium is at where PC advertises and LP doesn’t advertise. PC would always advertise since it is the dominant strategy so if LP took that into account (both firms have complete information), LP would never advertise since LP would earn more at $300 than at $200 knowing that PC advertises. Thus,
i) $450 ii) $300.</p>

<p>3B) iii) It says [url=&lt;a href=“Supporting Students from Day One to Exam Day – AP Central | College Board”&gt;Supporting Students from Day One to Exam Day – AP Central | College Board]here[/url</a>] that deadweight losses are caused by an inefficient point of production, not the cause of that inefficient point (so there’s a deadweight loss no matter if it’s an externality or a price ceiling), so since the equilibrium isn’t where MSB = MSC, there is a deadweight loss (which is shown on page/slide 17 of the link).</p>

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<p>@SideDishes: Oh yeah, derped on 1C, that’s what I got, just a typo.
As far as 2C, it goes against what I was taught, but it makes more sense to me at the same time, so I honestly don’t know.
And yeah, 3B makes sense. Again, wasn’t taught. =/</p>

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<p>The 2010 FRQ number 3 was an externality with no deadweight loss. Can anyone explain?
<a href=“Supporting Students from Day One to Exam Day – AP Central | College Board”>Supporting Students from Day One to Exam Day – AP Central | College Board;
<a href=“Supporting Students from Day One to Exam Day – AP Central | College Board”>Supporting Students from Day One to Exam Day – AP Central | College Board;

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<p>@Darthpwner: I think that in that question, since the government corrects the negative externality with a tax, the loss disappears so there’s no deadweight loss anymore. In this year’s question, a loss is created.</p>

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<p>Ah okay, makes sense. Hopefully the deadweight loss part doesn’t make up most of the points. Besides that, I thought I did fairly well :). Thanks!</p>

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<p>But then there’s DWL in the market, just not socially.
I think college board should specify what they’re talking about.</p>

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<p>Ok. So for:

  1. I agree with all of FastNeutrino’s answers. Part b)ii) I mistook as asking for profit, but that revenue area should be right.
    2)c) The Nash equilibrium occurs where neither firm will be better off making another decision. So, PC’s dominant strategy is to advertise, so it will advertise. Knowing this, LaPizza will choose to not advertise.
    i)$450
    ii)$300
    Neither PC or LP can be better off by switching strategies. (@FastNeutrino $250, $200 isn’t the Nash equilibrium because LaPizza would be better off if it chose to not advertise)
    3)b)iii) Here is a picture of the DWL for this negative externality:
    <a href=“http://classconnection.s3.amazonaws.com/966/flashcards/1081966/jpg/negative-externality[1]1326991098229.jpg[/url]”>http://classconnection.s3.amazonaws.com/966/flashcards/1081966/jpg/negative-externality[1]1326991098229.jpg&lt;/a&gt;
    c)i) Fireworks are now a positive externality, so the MSB (new demand curve) is to the right of the MPC (original demand curve). Because the new MSB is to the right of the MPC, society is under-producing.
    ii) I said the DWL was eliminated. If fireworks are banned the supply will become perfectly inelastic (at 0 units). The market will then produce at the allocatively efficient (i.e. no DWL) point where MB = MC (Qd=Qs=0 units). Just what I thought.</p>

<p>Those are just my thoughts, I’m positive on everything but 3)c)ii).</p>

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<p>Wow, you guys’ frq seems to be much difficult than mine…
Most of mine was just drawing graphs for perfectly competitive market/firm and monopolistic competition…</p>

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<p>@agmazzuckelli I’m not really sure about deadweight losses myself, but for 3C) ii), if the supply became perfectly inelastic at 0, the deadweight loss can’t become 0 since it’s not producing at where MSC = MSB, but rather where S = MSB. With the government ban, S = 0, moving farther away from MSC, while MSC and MSB don’t change since society still wants fireworks.</p>

<p>I believe it’s like page/slide 9 [url=&lt;a href=“Supporting Students from Day One to Exam Day – AP Central | College Board”&gt;Supporting Students from Day One to Exam Day – AP Central | College Board]here[/url</a>], but the quota is now set to 0. Before this, producer and consumer surplus at least existed because some was produced but now, all producer and consumer surplus is eliminated, making a higher DWL.</p>

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<p>That makes sense to me! I wasn’t really sure how to think about it, but that illustration makes perfect sense.</p>

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<p>I can’t believe i got 5’s on both. guys look up “ACDC Leadership” on youtube. clifford is a God</p>

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<p>Got a 5 in Microecon!</p>

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<p>I got 5’s on both. I am really surprised because I was expecting 4’s.</p>

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<p>I got a 5.</p>