2019 Micro Set 2, FRQ #2, Indirect Tax

2019 Micro Set 2, FRQ #2

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a) Using the graph, identify the following

i) The after-tax price and quantity.

ii) The area representing the total tax revenue received by the government.

Understand that the vertical distance between the two supply curves is the amount of the tax.

b) Now assume that the demand for hats is perfectly inelastic at Q3, while supply and per-unit tax remains unchanged.

i) Will the after tax price paid by consumers be higher, lower, or the same compared to the price in your answer in part (a) (i)?

ii) Will the total tax revenue received by the government be higher, lower or the same compared to the price in your answer in part (a) (i)? Explain.

c) If the demand for hats remain perfectly inelastic at Q3, and the per-unit sales tax is reduced, will producer surplus increase, decrease, or remain the same? EXPLAIN.

*Producer Surplus is the area below the price 

and above the supply curve

Stagflation & Growth Cheat Sheet

Stagflation & Growth Cheat Sheet

Classical View Cheat Sheet

Classical View Cheat Sheet

2019 Micro Set 2, FRQ #1, Monopoly

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2019 Micro Set 2, FRQ #1

a) Draw a correctly labeled graph for Gigantic and show each of the following.
(i) Price Profit maximizing
(ii) Profit max quantity
(iii) ATC curve
(iv) Consumer surplus

b) Demand for prescription drugs increases and Gigantic hires its workers in a perfectly competitive labor market.

i) What will happen to Gigantic's demand for warehouse workers? Explain.

One point is earned for stating that Gigantic Pharmaceutical Corporation’s demand for warehouse workers will increase and for explaining that the marginal revenue product of labor increases because of the increase in the product price.

ii) What happens to the wage rate paid by Gigantic to its warehouse workers and the number of warehouse workers it hires?

One point is earned for stating that the wage rate Gigantic pays to its warehouse workers will not change and the number of workers hired will increase.

(The wage rate doesn't change because Gigantic's product is protected by a patent and there is no competition in the production of Gigantic's drug. It is the only one that can produce and sell it,, so as the price goes up the market is unaffected so only the demand for Gigantic's drug increases. No competition for workers means no increase in wages in the market or for Gigantic's workers.)

c) After Gigantic's patent expires another firm enters the the market and makes an identical drug and sells it for a lower price.

i)What will happen to Gigantic's producer surplus?

Producer surplus is defined as the area below the price but above the supply curve. As the price falls the area of producer surplus decreases.

ii) What will happen to the consumer surplus in the prescription drug market? Explain.

Consumer surplus is defined as the area above the price but below the demand curve and as the price of the good decreases in the market consumer surplus increases.

2019 Micro Set 1, FRQ 1, Monopoly

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(a)Draw a correctly labeled graph for Fillup and show each of the following.

(i) Quantity
(ii) Price
(iii) DWL
(iv) The quantity at which FillUp would earn zero economic profit, labeled Qz.

b) FillUp's fixed costs increase. Will each of the following increase

Fixed costs do not effect the MC curve, so if MC is unaffected then the quantity produced doesn’t change. If quantity produced doesn’t change then DWL remains the same.

Think of it like this,, our rent increases. Does this affect the demand for our good? No, the demand curve doesn’t shift. It does affect the ATC curve as our fixed costs have increased so ATC would naturally shift upwards and it does affect our profits or losses but MC curve is unaffected by fixed costs so no change in quantity produced. If quantity produced doesn’t decrease or increase then DWL stays the same.

Remember DWL is defined as inefficiency due to the reduced quantity produced by this monopoly. Barriers to entry allow the monopoly to restrict output and sell at a higher price. The less output represents a loss of consumer and producer surplus, which is the definition of DWL.
If fixed costs increase then profit must decrease as TR - TC = Profit.

c) Demand for gasoline decreases.
(i) What must remain true for Fillup to operate in the short-run.

If demand decreases it shifts left and the price must remain above the minimum of the AVC as that would be the point of shut-down.

Monopoly cheat sheet here

ii) What happens to fillup's profit maximizing quantity and price if Fillup continues to operate.

If demand shifts left both price and quantity will decrease.

2019 Macro Set 2, FRQ # 3 Comparative Advantage

2019 Macro Set 2 FRQ # 3 
Comparative Advantage

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PPC Cheat Sheet - Click Here

Comp. Adv Cheat Sheet - Click Here

i) On the curve is attainable and efficient - E is efficient.

ii) I is inefficient as it is inside the curve, usually the College Board refers to anything inside the curve as unemployment, recession or idle resources. All are inefficient.

iii) Outside the curve is unattainable as society doesn't have the resources to achieve that point.

c) Capital Formation (the production of capital goods - machinery, equipment, factories) are thought of as future goods. To produce more Capital goods implies that society will be able to produce more in the future. 

More Capital Goods = More Long Run Growth. 

Less Capital Goods = Less Growth

Know and understand this now as you will see it again.

Fiscal & Monetary (Combo) Cheat Sheet

Fiscal & Monetary (Combo) Cheat Sheet