Lump Sum/ Per Unit FRQ
2015 AP Microeconomics Exam
1.
(D.) If the market is in LR Equilibrium, and the government gives a lump sum subsidy, what will happen to the following.
(i) The firms quantity in the short-run. Explain.
If the Market/Industry is given a Lump-Sum (Subsidy or Tax)
then the Lump Sum does not effect the Marginal Cost Curve of the Firm
therefore
the quantity of the firm doesn't change.
(ii) The market price and quantity in the Long-Run. Explain.
If firms are in LR Equilibrium and a Lump Sum subsidy is given
then firms will be making Positive Economic Profits
Positive Economic Profits attracts firms (Firms Enter)
Supply Increases Price Decreases and Quantity Increases
2012 AP Microeconomics Exam
1. Steverail (Monopoly) is incurring economic losses
(A.)
(C.) Assume a per unit subsidy to Steverail.
(i) Will Steve quantity increase, decrease, or not change? Explain.
Per Unit subsidies effect the MC curve (shifts right)
Understand that the MC curve is the firms supply curve
If the firm is given a subsidy for every unit of production then the Supply shifts right
the MC shifts right then the Price Decreases and Quantity increases
(ii) What about Consumer Surplus?
The Price decreases and therefore
CS will Increase
(D.) Assume that a Lump-Sum Subsidy is provided.
(i) Will the DWL, increase, decrease or stay the same? Explain.
Lump Sums do not effect the MC curve
therefore quantity can't change
therefore DWL can't decrease
as the only way to decrease DWL is to increase quantity
(ii) Will Steverail losses increase, decrease or remain the same.
Subsidies would decrease Steve's losses
2011 AP Microeconomics Exam
(A.)
(B.) Assume a Lump-Sum. What happens to the DWL? Explain.
If a lump-sum tax is imposed it doesn't effect the MC curve
therefore quantity can't change therefore DWL can't change.
2009 AP Microeconomics Exam
(A.)
(B.) Assume lump-sum subsidy will quantity change? Explain.
NO, as Lump-Sum subsidies do not effect the MC curve
therefore quantity cannot change.
2008 AP Microeconomics Exam
(A.)
(B.) Now assume a lump-sum subsidy is given, effect of the following in the short-run.
(i) Callahan's quantity of output. Explain.
As the Lump-Sum subsidies do not effect the MC curve
therefore Quantity doesn't change.
(ii) Callahan's profit - Increases as monies are being given.
(iii) The number of firms in the industry.
No firms can enter in the short-run.
Tricky Bastards
2007 AP Microeconomics Exam
1. Patent = Monopoly
(A.) GCR is making a profit
(B.) Assume the government gives a lump sum tax.
(i) Output and Price? Explain.
Lump-Sum taxes do not effect the MC curve
therefore quantity and price do not change.
(ii) What happens to GCR's profits?
GCR's profits decrease as they are taxed.
(C.) Assume instead the government gives a per-unit subsidy.
(i) Output & Price? Explain.
Per-Unit Subsidies shift the MC curve,
a per-unit subsidy would shift the MC curve to the right
price would decrease and quantity would increase
(ii) What will happen to GCR profits.
Profits increase as the more produced the more subsidy given.
2000 AP Microeconomics Exam
(G.) To achieve allocative efficiency what would be best a per-unit tax or per-unit subsidy.
A per-unit tax would shift the MC curve to the left, quantity would be reduced
and therefore DWL is larger as we are further away from allocative efficiency.
A per-unit subsidy would shift the MC curve to the right, quantity would increase
and therefore DWL would decrease as more quantity will be produced,
as we are moving closer to the SOQ the we are becoming more
allocatively efficient
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