Saturday, September 5, 2015

Determinants of Demand

Determinants of Demand Questions 

1995 AP Micro Question

There was some confusion about this question the other day and I wanted to explain my thinking. The question wants the answer that is the most likely (best answer) to shift the demand curve.

 (B) A decrease in the price of a license necessary for aircraft mechanics.

If the price of the license is paid for by the mechanic, then the license must be looked at as a tax on the mechanic to supply his labor. Taxes are a determinate of supply and an increase of taxes (license prices) will reduce the supply of airplane mechanics.

If the price of the license is a cost to the airplane companies,  they pay the fee for the license, then a reduction of the license price would be a movement on the curve. A decrease in the license price would lower the price for a mechanic, with the effect being  an increase of the quantity demanded for mechanics.

Answer - (A) An increase in the demand for air travel.

An increase in the demand for air travel is a demand shifter for the need for airplane mechanics. The demand (at every price) would shift right.

The rest of the questions are easily seen as not the best answer.

1995 AP Micro Exam

Normal Goods are by definition those goods that when an increase in income occurs more of the good is purchased. This is simply a definitional question.

An inferior good is one that would have been bought less when income rises.
A Public good is a good provided for by society. 
A Giffen good is a good that is consumed more as the price rises.

2000 AP Micro Exam
Answer - (D) The release of three summer movies sets records for movie attendance.
Popcorn and movies are complements, meaning that when movie attendance increases, so does the demand for popcorn. The Demand curve for popcorn would shift rightward. 
More popcorn would be Demanded at all prices.
(A) The wages of farm workers and movie theatre employees increase.
Increasing wages are a cost to the suppliers of a good and would cause prices to rise, and rising  movie and popcorn prices would reduce the quantity demanded of both goods. Mr Concession would not sell more popcorn (most likely) with rising prices.
(B) A technological improvement results in less expensive and more efficient harvesting of corn.
This would lower the costs of supplying the corn and result in Mr Concessions profits to increase but as for prices being able to rise and a greater quantity being sold, not so much.
(C) The introduction of new fat-free potato chips provides new competition in the snack food market.
Competition tends to make suppliers lower their prices to compete, not raise them and get more sales.
(E) New government regulations force movie theatres to hire more security guards at each new theatre. More security guards mean that the theatre will have to raise its prices for movies to pay for the new guards and that means less attendance at the theatre and less sales of popcorn.

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