Thursday, May 5, 2016

2003 AP MICRO EXAM (Question 3)

2003 AP MICRO EXAM (Question 3)

(a) Define the marginal revenue product of labor (MRPL)

MRP of labor is the additional revenue obtained by adding an additional input of labor (extra worker). It is in essence derived demand and is calculated by multiplying the marginal product and the price (of the good) together. It is downward sloping. MP X P = MRPL

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(b) Using a correctly side by side graph show each of the following.

  (i) Equilibrium wage in the labor market
 (ii) Labor supply curve the firm faces
(iii) Number of workers the firm will hire

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(c) Company XYZ develops a new technology that increases its labor productivity. Currently this technology is not available to any other firm (the market). For company XYZ explain how the increased productivity will effect each of the following.

 (i) Wage rates
(ii) Number of workers hired

If the Company XYZ, has use of technology that only affects its workers then it would have no reason to pay its workers more. Remember that they are price takers so they don't get to change the wage only the market can do that. So if the market demand or supply is not effected then there is no change in the firms wage rate. 
If Company XYZ's workers  are more productive then the firm will be able to make more profit per worker and therefore will hire more worker. 
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2003 AP MICRO EXAM (Question 2)

2003 AP MICRO EXAM (Question 2)

(a) Draw a CLG showing a typical monopoly that is maximising profit and indicate each of the following.

 (i) Price
(ii) Quantity
(iii) Profit

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(b) Explain the relationship between the demand curve and the MR curve.

The MR curve is below the Demand curve for a monopolist. Monopolists must lower their price to sell more quantity and they loose the revenue on the previous units they would have made at the higher price.

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(c) Label each of the following on your graph in part (a)

(i) Consumer surplus
(ii) Deadweight loss


2003 AP MICRO EXAM (Question 1)

(a) Using a correctly labeled side-by-side graphs for the smoke alarm market and J & P is currently earning  short-run positive economic profits.

(i) Price
(ii) Output

(b) In the graph in part (a) for J & P, indicate the area of iconic profits that J&P Company is earning in the short-run.

(c) Using a new set of correctly labelled side-by-side graphs for the smoke alarm market and J&P Company, show what will happen in the long-run to each of the following.

(i) Long-run equilibrium price & quantity in the market.
(ii) Long-run equilibrium price & quantity for J&P Company
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(d) Assume that the purchase of smoke alarms create positive externalities. Draw a CLG of the smoke alarm market.

 I like my graph better,, positive consumption externalities 

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(e) Identify one government policy that would be implemented to encourage the industry to produce the socially optimal quantity.


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2002 AP Macro Exam (Question 3)

2002 AP Macro Exam (Question 3)
 Go to Learn, I'm talking to you Jayne/Jane.

(a) How & why will capital flows be affected by this change in Real Interest Rates?

If the RIR increases in the US then the Japanese will want to buy US dollars in the FOREX market to be able to purchase the higher interest rate assets. Capital will flow toward the US in hopes of gaining profits from being paid the higher interest rates.

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(b) Using a CLG for the Yen market, show an explain how the value of the yen will change relative to the value of the dollar.

As the RIR in the US increases, the Japanese hunting higher profits and better returns will sell their Yen in the FOREX market for US dollars. This causes their to be an increase in the supply of ¥ in the FOREX market. A larger supply of ¥ will cause the value of the ¥ to decrease in value relative to the US dollar.

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(c) Explain how a change in the value of the Yen (¥) will affect each of the following in the US.

(i) Imports from Japan
(ii) Exports to Japan

If the RIR's in the US are increasing then the Japanese are dumping their ¥ in the FOREX market and buying  US $, and therefore the demand for the US $ is increasing the value of the US dollar. A strong (appreciating value) dollar means that Americans citizens can purchase more Japanese imports. The increasing value of the dollar makes Japanese goods seem relatively less expensive than US goods. (Imports increase)

A strong $ would make US goods appear relatively more expensive to the Japanese and therefore less exports will be bought by the Japanese. (Exports Decrease)

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What did I get on the AP exam?

2002 AP Macro Exam FRQ #2

2002 AP Macro Exam (Question 2)
I love this question as it is one of the best FRQ's to further your 
understanding of the LRAS Curve.


1st. Understand that (potential real gross domestic production) is the boundary of the production possibility curve. (on the curve)

2nd. Understand that what increases/decreases the PPC does the same to the LRAS curve. (Population, Trade, Resources, Human Capital ,Technology (productivity, capital formation))

Past Blog Post on this subject/topic

(a) A decrease in the labor force participation rate. (Population)

If the population decreases there are less people to work (overall) and therefore LRAS will decrease. This is not to be confused with unemployment, which is a short-run view of idle resources and is inefficiency, not a reduction in potential)

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(b) An increase in the government deficit following a reduction in personal income taxes. (Technology)

A reduction in personal income taxes is contractionary fiscal policy.
The increase in government deficits implies an increase in government spending which is expansionary.

Which one is more powerful and why?

A decrease in taxes will increase disposable income and increase consumption and investment and thus aggregate demand but some of that tax decrease will be saved and not spent and therefore will have a less of an effect than government spending.

Government spending will be consumed in its entirety and has a larger multiplier.

More importantly, government spending implies that some of that increase in investment will be toward capital formation, (ports, technology, equipment and factories) and therefore will increase the long-run aggregate supply/potential real gross domestic production.

Government spending will increase potential real gross domestic production thus increasing long-run aggregate supply.

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(c) A decrease in the quantity of inputs needed to produce a unit of output. (productivity/technology)

A decrease in the quantity of inputs needed to produce a unit of output implies there has been an increase in technology/productivity. An increase in technology allows the production possibility curve boundary to shift outward and LRAS curve shifts rightward.

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(d) An increase in the quality and quantity of education. (human capital)

Increases in the quality/quantity of education is an increase in human capital is a shifter of the PPC curve (outward) and therefore would cause the LRAS curve to shift rightward.

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(e) An increase in the rate of savings.

An increase in the rate of savings means that the supply of loanable funds has increased which lowers the Real Interest Rate and spurs investment. Some of that investment will be capital formation and will shift the LRAS curve to the right.

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