Post Econ Exam Thread

Test Preparation AP Test Preparation
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<p><a href="http://useconomy.about.com/od/monetarypolicy/a/fed_funds_rate.htm%5B/url%5D"&gt;http://useconomy.about.com/od/monetarypolicy/a/fed_funds_rate.htm&lt;/a>
nice explanation of federal funds rate</p>

<p>also, what did you guys put for Micro #2? Did worker salary increase or decrease when productivity/worker increased? I put that it would be likely to decrease, but that it's dependent on external conditions and wage elasticity of demand (which we don't have) - we don't know if those workers would have moved elsewhere if wages were lower.</p>

<p>==
payoff matrix was easy even if you didn't get it - one corporation would have always benefited from early, and the other corporation would have known that - so it would always choose early as well</p>

<p>==
lol champion1one, yes, this test was particularly friendly to self-studiers. The last FRQ was especially friendly. FRQ #2 was also friendly as well - since any naive observer would be able to determine when the cost incurred by hiring additional workers would be greater than the cost by additional output. FRQ #1 was different - though I made reasonable answers to many of the questions on #1. overall, I think I just ****ed up the graphs, which I was too lazy to try to memorize. :p</p>

<h1>also I only knew what lump-sum tax was from the hours I invested in Civilization III (if I got anything out of that damn game :p). Pay-off matrices were in Dawkins' "Selfish Gene" though - in a more complex form too.</h1>

<p>also, can we really be sure that per-unit subsidies really increase the profit of the corporation, as opposed to keeping the profits of the corporation constant?</p>

<p>Now, this year's instance of macro, on the other hand, wasn't as friendly to self-studiers. It's a very self-studiable test, but I was only able to invest a few hours into it. =/ Well, #1 was actually pretty easy but I realized that I totally ****ed it up right after I went into the Barron's book right after the test - gaah. I was planning on spending the 2 hours in between immersed in the Barron's book (note, Kaplan's explanation on international trade totally sucks - Princeton Review's explanation also sucks). But I ended up trying to see where I went wrong on the Macro test. Oh well, I think I got borderline 4/5 on Micro. Macro I'm worried about though.</p>

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<p>anyways in summary...
Barron's has the best explanations - its practice tests just suck</p>

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<p>So, which count for GDP?</p>

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<p>i had no, yes, yes, no. the first rent question was a used item - no count. the second was apartment rent, which IS current. commission is just income, so that was obviously yes. the last was Korea's GDP since it said all production in S. Korea.</p>

<p>For #3 on micro, what were your arguments for why Ranking Wheels did not have the dominant strategy? I said that the lowest they could receive was $800 if they chose late while if they chose early, they could earn the max profit but they could also receive $650. </p>

<h1>1 and #2 on Micro were typical. I figured there was going to be an oligopoly question but I expected a graph, which had never appeared in the last 6 years. I have to say #3 was somewhat tricky since I forgot whether or not dominant strategy depends on if the firms are all knowing or not. Common sense gets you pretty far though.</h1>

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<p>
[quote]

For #3 on micro, what were your arguments for why Ranking Wheels did not have the dominant strategy? I said that the lowest they could receive was $800 if they chose late while if they chose early, they could earn the max profit but they could also receive $650.

[/quote]
</p>

<p>uh I think that Ranking Wheels' dominant strategy is early - since Roadway is always going to choose early no matter what (and here Ranking Wheels would always make the max income). So then it's max income possible for both</p>

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<p>damn, so I screwed that up. I thought for that part, we should assume that Ranking Wheels would not know Roadway's decision... which doesn't make much sense now that I look back. Oh well.</p>

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<p>^But it said in the question, the companies won't know each other's decision until afterwards. Wouldn't Ranking's be late because it stands to lose a lot more if Roadway chose late?</p>

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<p>Rankin has no dominat strategy, because neither choice gives it an absolute advantage. However, once they both see the matrix(part e), it will always pick early, giving it a profit of $900.</p>

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<p>Well heres my answers for micro/macro:</p>

<p>Macro 1a. money demand increases because people want money, so interest rates increase.
b. because prices relatively fall, demand for the dollar increases because people want more of US' cheap goods. consequently, the dollar appreciates since demand increases.
c. dollar appreciation leads to greater imports and less exports (more imports because the dollar has more purchasing power, and conversely less exports because japan's yen buys less goods). therefore, net exports falls.
d. aggregate demand falls because foreign sector decreases. SO, price and output falls.
e. unemployment increases according to SRPC.</p>

<p>MACRO 2a. rate at which banks loan to eachother.
b. buy bonds to loosen money supply so banks will be more lenient to loan eachother money.
c. use the formula, $40 million, i dont know whether or not you add in the $10 million. i think you do, so i got it wrong.
d. nominal rate falls since money supply increases.
e. since real rate = nominal - inflation, and nominal rates fall and inflation increases, real rate definitely falls.</p>

<p>MACRO 3a. no -- used goods not counted.
b. yes -- paying for a good (shelter) in 2006.
c. yes -- paying for a service (stockbroker) in 2006.
d. no -- not domestic.</p>

<p>MICRO 1a. everyone can do that on their own.
b. output and price stays the same since MC isnt changed, although profits fall since ATC increases.
c. output increases, price falls since both MC shifts right and ATC shifts down. This causes profits to increase.
d. profits = 0. perfect competition, in long run since firms will enter, lured by the incentive of profit. so atc = mc = mr. so no profit.</p>

<p>MICRO 2a. horizontal line at $90.
b. occurs where mrp = mrc sooo, at 5 units.
c. quantity hired increases because mrp will increase. wages will not change, because not all the firms use it. if they want higher wages, HZRad will just hire other workers at the regular price.</p>

<p>MICRO 3a. oligopoly for obvious reasons.
b. early, since they make more money.
c. early; regardless of what rankin chooses, an early departure will get them more profit.
d. there is no dominant strategy, because if roadway chooses early, they would choose early, but if roadway chooses late, they would choose late.
e. $900. since roadway will always choose early, rankin will choose early because they will make more profit.</p>

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<p>
[quote]
c. quantity hired increases because mrp will increase. wages will not change, because not all the firms use it. if they want higher wages, HZRad will just hire other workers at the regular price.

[/quote]
</p>

<p>But isn't it productivity per worker? Wouldn't the firm face diminishing marginal returns earlier rather than later if each worker had more productivity? (there are no more resources than before)</p>

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<p>Net exports increase because our stuff is cheaper. I agree with everything on micro, except I did #2 wrong.</p>

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<p>okay, I see now...</p>

<p>marginal revenue product = marginal physical product * marginal revenue.</p>

<p>Each additional worker will produce more than he had produced before, irrespective of how much the previous workers have produced. Due to this, there will be more workers who the firm can hire before MFC > MRP</p>

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<p>This is concerning the scores. Because Micro was generally easier than Macro, does that mean more people will get 5's? OR will the curve make them equal?</p>

<p>On the website it said 45% get a 4+ on Micro, while 32% get 4+ on Macro. Therefore it is not curved? </p>

<p>This is what confuses me... because this AP test was rediculously easy to me, yet it worries me because the curve may be much harder!!</p>

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<p>can someone explain how you figure out that profits increase with the subsidy? i wasn't sure, but i guessed that profits stayed the same because the purpose of the subsidy was to make up for the profits that the firm would lose by decreasing prices and moving away from its profit maximization quantity.</p>

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<p>for the profit question, I first said it cannot be determined..from the graph.because you are not unsure if P-ATC *Q will be larger or smaller.....but........then I changed my answer...because at least in my graph....it seems to increase.......anyways........I don;t know</p>

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<p>Cyrone --- If the test was THAT easy, you should have no problem then at all mate...</p>

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<p>writ, think of it this way. With a gov't subsidy a firms MC curve drops because the subsidy helps to pay for the input prices of producing each unit. If a firm produced at the same output and price level with a lower MC curve, it would obviously make more profits (because a lower MC curve means a lower ATC curve, and profits = (price-ATC)*Q. The firm, however, lowers the price level and increases the quantity, which may cause some confusion. You just have to realize that the firm would have no sense in doing this unless it could make an even higher profit. It is already better off than it was before, but lowering the price and increasing the quantity makes it even BETTER off. (this is due to a combination of the lowered ATC and the demand curve still being in the elastic portion (since MR is still>0). Hope that helps</p>

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<p>thanks (10 char)</p>