Sunday, September 6, 2015
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.
Friday, September 4, 2015
Comparative Advantage (Input Problems)
Comparative Advantage (Input Problems)
Absolute Advantage - A country is said to have an absolute
advantage in the production of a good if it can produce the most
goods with the same resources: or the same amount of goods, using
the least amount of resources. (Efficiency is key)
The definition does
not assume trade and there is no analysis of opportunity cost.
Input Problems - a country can produce the same good (1 unit of) using the least amount of resources.
The key phrase is:
(can produce one unit of food or one unit of clothing).
I have not found a FRQ question using comparative advantage that requires the input method.
1995 AP Macro Exam
Notice: one unit of food or one unit of clothing (Input Problem)
2000 AP Micro Exam
Notice: one unit of food or one unit of clothing (Input Problem)
So, just to say it.
It could be one unit of steel or one unit of glass (Input Problem)
or It could be one unit of hemp or one unit of manure (Input Problem)
Take Away - Input Problems
Resources into the production of the good are variable (inputs) while the measurement of the good produced is fixed (one unit).
Take Away - Output Problems
Resources into the production of the good is fixed (equal resources) while the amount of the good produced is variable (output).
Comparative Advantage Cheat Sheet
Comparative Advantage (Output Problems)
Comparative Advantage - (Output Problems)
Couple of fun videos
In teaching comparative advantage this last couple of days I have made some connections that might have been plain to many before me, but I remained clueless. (story of my life)
The biggest confusion seems to come from being able to discern the difference between output and input problems.
Absolute advantage - A country is said to have
an absolute advantage in the production of a good if it can produce the most goods with the same resources: or the same amount of goods, using the least amount of
resources. (Efficiency is key) The
definition does not assume trade and
there is no analysis of opportunity
cost.
The key here is that to produce using an equal amount of resources. (Output Problem)
2008 AP Exam
Notice the "use equal amount of resources" (Output Problem)
2005 AP Exam
Notice the "10 units of labor for country A and the 10 units of labor for country B"
"equal amount of resources" (Output Problem)
2008 AP Exam
Notice: "using all of their available resources" - (Output Problem)
This problem doesn't say explicitly that equal resources are used but it does supply the axis which label grain and steel (in tons) as what is produced using all available resources.
Implies: that an equal amount of resources are used.
2010
Notice: Using equal amounts of labor hours. (Output Problem)
2008 AP Exam (FRQ)
Notice: "Using equal amounts of resources" (Output Problem)
2004 AP Exam (FRQ)
Notice: "Using equal amounts of resources" (Output Problem)
I think I have beaten this horse enough. I like to think that sometimes it is the small phrases or tips that we have students place in their brains that could possibly help them answer the question correctly.
Updated (Comparative Advantage Cheat Sheet)
Saturday, August 29, 2015
Hello 2015/16 School Year
Hello all,
This year I am teaching (finally) at AIS, American International School. The first two weeks have been a transition as I learn the routines. I will start updating some information for my blog, specifically as always to AP economics. I am teaching one AP Micro/Macro class and two year-long micro classes. If you are a teacher, any advice is appreciated. If you are a student, any suggestions are appreciated.
Charles Waugh
This year I am teaching (finally) at AIS, American International School. The first two weeks have been a transition as I learn the routines. I will start updating some information for my blog, specifically as always to AP economics. I am teaching one AP Micro/Macro class and two year-long micro classes. If you are a teacher, any advice is appreciated. If you are a student, any suggestions are appreciated.
Charles Waugh
Wednesday, June 10, 2015
2015 AP Microeconomics Exam FRQ #3
2015 AP Microeconomics Exam FRQ #3
(a) Calculate the total producers surplus at the market equilibrium price and quantity.
Area of triangle = (h * b/2) or (1/2 height * base)
so, 20 (height) X 20 (base)/ 2 = 20*20 =400/2 = 200
Watch me answer it here
(a) Calculate the total producers surplus at the market equilibrium price and quantity.
so, 20 (height) X 20 (base)/ 2 = 20*20 =400/2 = 200
Answer - 20*20 = 400/2 = 200 (total producers surplus)
AP - Answer - One point is earned for calculating the total producer surplus as (1/2 × 20 × 20) = $200.
(b) If the government imposes a price floor at $16, is there a shortage, surplus or neither?
Remember (floors are high and ceilings are low). A price floor set below the equilibrium price will have no effect as the market will clear.
Answer - at a $16 price floor neither a surplus or a shortage will occur because the $16 is below the equilibrium price,, it is not an effective or binding price floor.
AP - Answer - One point is earned for stating that imposing a price floor at $16 is ineffective and will not create a surplus or a shortage in the market because it is set below the equilibrium price, or because it is
not binding
(c) If instead the government imposes a price ceiling at $12, is there a shortage, a surplus or neither?
A price ceiling is a government-imposed price control or limit on how high a price is charged for a product.
So, the highest price that can be charged for the widgets is $12. At the low price of $12 suppliers will only provide 12 units of this good,, but at the low price of $12 people will demand 24 units. So there will be a shortage.
AP - Answer - One point is earned for stating that imposing a price ceiling at $12 will create a shortage because quantity demanded is greater than quantity supplied, or because the price ceiling is binding.
(d) If instead the government restricts the market output to 10 units, calculate the deadweight loss.
Understand that a 10 unit restriction on output is represented by a perfectly inelastic supply curve at the 10 unit quantity. All the people/quantity to the right of the 10 unit limit will not be served/produced,, thus it is allocatively inefficient and therefore the efficiency is represented by deadweight loss.
Area of Triangle = b*h/2
height = 40-10 = 30
base = 20-10 = 10
30*10 = 300/2 = 150
AP - Answer - One point is earned for calculating the deadweight loss as $150 and for showing:
(1/2 × 30 × 10)
or
(1/2 × 10 × 10) + (1/2 × 20 × 10)
or
$50 + $100
(e) Assume the price decreases from $20 to $12.
(i) Calculate the PED
(ii) Is demand perfectly elastic, relatively elastic, unit elastic, perfectly inelastic or relatively inelastic?
2015 AP Microeconomics Exam FRQ #2
2015 AP Microeconomics Exam FRQ #2
Watch me answer it here
(a) Does each shop have a dominant strategy to set a high price, low price, or does it have no dominate strategy?
Check the Oligopoly Cheat Sheet
So, While looking at my cheat sheet,, I'm not really sure I like the definition I have included. My understanding is that a dominate strategy is that no matter the actions of the other participant the same action occurs. In essence,, we do the same thing no matter what the other player does. I'm not sure the understanding of this is clear in the definition above... (summer work)
No matter what Quick does,, Bread should go Low,,, therefore Bread has a dominate strategy to go low. Bread always goes low.
Answer - Bread has a dominate strategy to go low,, Quick should do the opposite of whatever Bread does., so it has no dominate strategy.
Answer - AP- One point is earned for stating that Breadbasket has a dominant strategy of setting a low price but Quicklunch does not have a dominant strategy.
(b) If the two shops don't cooperate on setting prices, what will be the profit for each shop.
Bread will choose Low, because $120 is the highest daily profit it can attain while not cooperating with Quick.
Quick will choose High, because $80 is the highest daily profit it can attain while not cooperating with Quick.
Answer - If there is no cooperation (setting prices) then their payoff will be from the left lower quadrant box,, $120 & $80.
Answer - AP - One point is earned for correctly identifying the profit for Breadbasket is $120 and the profit for Quicklunch is $80.
(c) The town (politician) government is concerned that food prices are to high (and there is an upcoming election). It (he/she) decides to give a daily subsidy (taxpayer monies) of $20 to any shop that chooses to set a low price for its food items. Redraw the payoff matrix under the new government scheme.
Make a new chart adding $20 to the firms that offer the low price.
Then make a new word chart to answer the following questions:
Once your charts are created,, then go and answer the questions.
(i) Would Quick choose to set a high price or a low price? Explain using values.
(ii) Would Bread's profits, decrease, increase or stay the same? Explain.
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