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Malta

Here is a shout out to all of the QSI students in Malta studying for the AP economics exams.

I'm sitting here in Columbia SC listening to the Bay Retro radio station in Malta. http://radio.garden/live/saint-julians/bay/

Marie Louise Coleiro Preca would like you to get a 5

If your studying AP Economics and want your picture added to this page,, send me a picture of yourself studying economics, draw a graph on a window, wall, book, floor and have it added.

Send pictures here  - wcwaugh@aol.com

2010 AP Microeconomics FRQ #1

2010 AP Microeconomics FRQ #1

watch me answer it here

https://youtu.be/UvPSKfqzl6Y

(A) Assume that Farmer Roy is making zero economic profit in the short-run. Draw a correctly labeled side by side graph for the corn market and for Farmer Roy and show each of the following.

(i) The equilibrium price and quantity for the corm market.

(ii) The equilibrium quantity for farmer Roy , labeled QF1.

(B) Is Farmer Roy's corn, is the demand perfectly elastic, perfectly inelastic, relatively elastic or relatively inelastic or unit elastic? Explain.

So, you must have recognised by this point that the MR curve is the Demand curve for a Perfectly Competitive industry. Therefore "putting your thinking cap on" the Demand for Farmer Roy's corn is perfectly elastic.

MORE IMPORTANT: is for you to understand why Farmer Roy doesn't raise his price? IF Farmer Roy raises his price, then there are thousands (theoretically) of other firms that would have a lower price and therefore Farmer Roy's revenues would fall to zero.

What if Farmer Roy decides to lower his price? (bit harder to conceptualize), If Farmer Roy can sell all he wants at the price of PM1, then how would lowering his price get him any benefit... again, he can sell all he wants at that price,, lowering his price will not increase sales.....

Perfect Competition Cheat Sheet Updated here.

(C) Corn can be used as the input in the production of ethanol. The demand for ethanol has significantly increased.

(i) Show on your graph in part (A), the effect on the increase in demand for ethanol on the market price and the quantity of corn in the short-run, labelling the equilibrium price and quantity.

(ii) Show on your graph in part (A), the increase in the demand for ethanol on Farmer Roy's quantity of corn in the short-run.

(iii) How does the average total cost for Farmer Roy at QF2, compare with PM2?

I dislike this question, as it seems to be confusing and doesn't really test your knowledge of economics. This question is simply asking where geographically the ATC is at in reference to the new price. The ATC curve was tangent at Pm1, zero economic profit was being earned but when the price rises to Pm2 the ATC is lower meaning that positive economic profits are being earned.

(D) Corn is also an input in the production of cereal. What is the effect of the increased demand for ethanol on the equilibrium price and quantity in the cereal market in the short-run? Explain.

 If there is an increase in the demand for ethanol then the demand for corn must increase. If the demand for corn increases then the price of corn must increase and therefore the price and quantity of cereals must increase as corn in an input for cereals. 

Perfect Competition Cheat Sheet Updated 12/20/2016

Perfect Competition Cheat Sheet Updated 12/20/2016

I added 2 small parts - Why? doesn't the perfectly competitive firm raise its price. (In the perfectly competitive market there are thousands of firms, each competing with each other, and all goods are the same (homogenous). If you raise your price then there are so many competitors that your customers will just buy from someone else... Yes, even if you raise the price by a penny.... This doesn't work as well in the real world,, but the AP exam isn't the real world)

- Why? doesn't the perfectly competitive firm lower its price? (In the perfectly competitive market the perfectly elastic MRDARP curve. Perfectly elastic demand implies that the firm can sell all it wants at the market price... I'm gonna write that again,, the firm can sell all it wants at the market price... Why would I ever lower my price if I can sell all I want,, everything I make,,, anything that I build at the higher price????

I added this because so many of the people I'm tutoring this year,, seem to miss these simple points.

2010 B Micro FRQ #2

2010 B Micro FRQ #2

Watch me answer it here

https://youtu.be/sFLBg3nifok

Make a Chart

(A) Calculate the Marginal (physical) product of the third worker.

For the AP marginal physical product is often just marginal product. 

Understand that the MRP is MP x P (price of the good) so, with an MRP of $450 and a price of $5

then the marginal product must be 90. 

The marginal product of the 3rd worker is 90.

(B) Define the law of diminishing marginal returns and explain why it occurs.

From the Resource Costs (Labor) Cheat Sheet here.

((The overuse of a fixed input,, I don't know exactly what that means.)) 

(It means to many input for a fixed capital)

(Too many cooks in the kitchen/ Coffee cart)

Example, you have a coffee cart and it can reasonably fit three people inside to make drinks, take the money etc. If you try and add 5 people into the cart, they will bump into each other, actually the large number of people in a small space may limit or even decrease production. Labor is the variable inputs and the coffee cart is the fixed capital.

(C) Diminishing marginal returns first occur with the hiring of which worker for the firm.

Hiring of the 3rd worker as MRP/MP decreases with the hiring of #3.

(D) What is the highest daily wage the firm is willing to pay the fifth worker?

The 5th worker will be paid no more than she will bring in. So the 5th worker makes/brings in $300,, so the firm will not pay her more than that or they would be incurring a loss on the hiring of #5 worker.

(E) What will happen to the demand for labor if the market price of the product increases?

If the price of the product increases then the MRP will increase/shift right, and more labor will be demanded as we will want to produce more of this good.

Resource Costs (Labor) Updated Cheat Sheet

Resource Costs (Labor) Updated Cheat Sheet

If you need a copy of a cheat sheet - email wcwaugh@aol.com

2010 Micro FRQ #3

2010 Micro FRQ #3

Watch me answer it here

https://youtu.be/RS58mqKUQQA

(A) Using the labelling on the graph, identify the area representing each of the following at the market equilibrium.

(i) Consumer surplus

(ii) Producer surplus

(B) Assume that the production of each unit of candy creates a 

negative externality equal to (p5-p2),

Identify the socially optimal quantity.

(((Production of candy))???    What does a negative production externality look like.

Market Failure Cheat Sheet here.

(C) Assume that the government imposes a pr-unit tax of (p5-p2) to correct for the negative externality. Show.

(i) Consumer surplus

(ii) Dead Weight Loss

 

2010 Macro FRQ #1

2010 Macro FRQ #1

Watch me answer it on youtube 

https://www.youtube.com/watch?v=aX2zAKId5RQ&feature=youtu.be

(A) Draw a CLG of AD/AS and show each of the following.

(i) The Long Run Supply Curve.

(ii) The current equilibrium output/price levels, labeled a sYE & PLE.

(B) Assume the government increases spending on national defence without raising taxes.

(i) On your graph in part (a), show the effect on AD.

Government spending on national defence is government spending that increases the G in the GDP formula. So, C + I + G + XN = GDP,,, If, G increases (defence spending) then AD increases, increasing GDP.

(ii) How will this action affect the unemployment rate in the short-run? Explain.

If the government is spending then the G is increasing, people are supplying goods to the government, so GDP is increasing and output is increasing which means businesses are hiring to keep up with the increased demand from government spending and increased output. 

(C) Assume that the economy adjusts to a new long-run equilibrium after the increase in government spending.

(i) How will the new short-run aggregate supply curve compare to the initial SRAS curve in part (a)? Explain.

The college board is simply asking you what happens in the long-run, after inflation happens in the economy. Notice that when an economy is in equilibrium and then the government spends, that we are in an inflationary gap. If the government does nothing in the long run the SRAS curve will shift leftward as prices and wages adjust. In essence during an inflationary gap, there isn't enough labor to handle the increased demand for goods and services, so wages rise to entice more people into the workforce and prices also rise.

(D) In order to finance the increase in government spending national defence in part (B), the government borrows from the public. Using a CLG of the loanable funds market, show the effect of the government's borrowing on the real interest rate.

If the government is borrowing from the public then the demand for loanable funds is increasing driving up the interest rate.

(E) Given the change in the Real Interest Rate in part (d), what is the impact of the following.

(i) Investment.

Crowding out will occur as the real interest rate rises it deters people from taking out loans to invest. As the government drives up the interest rates by borrowing there is less and less private investment.

(ii) Economic growth rate. Explain.

If there is less private investment there will be less long-term growth as there will be less capital formation, less capital goods produced so in the long-run society will suffer.