Learn Extracted exam questions AP Microeconomics 2016 Free Response
2016 Free Response
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The markets for bananas, muffins, and coffee are interrelated, and each market is perfectly competitive.
In the market for bananas, the equilibrium price is $1.00 per pound, and the equilibrium quantity is 1,000 pounds per week. Suppose the government imposes a price floor on bananas at$1.20 per pound, causing the quantity supplied to increase to 1,500 pounds per week.
Would the price floor result in a shortage, a surplus, or neither? Explain.
Calculate the price elasticity of supply if the price increases from $1 to$1.20. Show your work.
Between $1 and$1.20, is the supply elastic, unit elastic, or inelastic? Explain.
Bananas are an input for muffins.
Draw a correctly labeled graph of the market for muffins indicating the equilibrium price and quantity, labeled $P_0$ and $Q_0$, respectively.
[Graph to be drawn by student: axes for Price and Quantity in the muffin market, showing equilibrium point at $P_0$, $Q_0$.]
On the graph drawn in part (b)(i), show the impact of an increase in the price of bananas on the muffin market, labeling the new equilibrium price and quantity $P_1$ and $Q_1$, respectively.
On the same graph, completely shade the area that represents the change in the consumer surplus caused by the increase in the price of bananas.
In the market for coffee, the equilibrium price is $3.00 per cup and the equilibrium quantity is 100 cups per week. The cross-price elasticity of coffee with respect to muffins is$-2$.
Are coffee and muffins normal goods, inferior goods, complementary goods, or substitute goods?
Assume the supply of coffee is perfectly elastic. Using the equilibrium price and quantity given above, draw a correctly labeled graph for the coffee market, and show the impact of an increase in the price of muffins on the coffee market.
[Graph to be drawn by student: coffee market with a perfectly elastic (horizontal) supply curve at $P = \$3.00$, equilibrium quantity $100$ cups per week, showing the shift caused by the increase in the price of muffins.]
Given the original quantity of 100 cups of coffee per week, if the increase in the price of muffins is $10\%$, calculate the new equilibrium quantity in the coffee market. Show your work.
Martha has a fixed budget of $20, and she spends it all on two goods, X and Y. The price of X is$4 per unit, and the price of Y is $2 per unit. The table below shows the total benefit, measured in dollars, Martha receives from the consumption of each good.
| Quantity of X | Total Benefit from X | Quantity of Y | Total Benefit from Y |
|---|---|---|---|
| 0 | $0 | 0 | $0 |
| 1 | $16 | 1 | $10 |
| 2 | $28 | 2 | $18 |
| 3 | $36 | 3 | $24 |
| 4 | $40 | 4 | $28 |
| 5 | $41 | 5 | $30 |
What is Martha's marginal benefit of the fifth unit of good X?
Calculate the total consumer surplus if Martha consumes 5 units of X. Show your work.
Martha is currently consuming 4 units of X and 2 units of Y. Use marginal analysis to explain why this combination is not optimal for Martha.
What is Martha's optimal combination of goods X and Y?
Indicate whether each of the following will cause the optimal quantity of good Y to increase, decrease, or stay the same.
The price of good Y doubles.
Martha's income falls to $10 with no changes in prices.
Martha's income doubles, and the price of both goods double.
Camden's Cakery is one of many dessert cafés serving a local community. Each café produces a slightly differentiated product, there are no barriers to entry or exit, and the firm is in long-run equilibrium.
Draw a correctly labeled graph showing Camden's demand curve, marginal revenue curve, marginal cost curve, and long-run average total cost curve. Label Camden's profit-maximizing output $Q_m$ and its price $P_m$.
[Graph to be drawn by student: monopolistically competitive firm in long-run equilibrium, showing downward-sloping demand ($D$) and marginal revenue ($MR$) curves, a marginal cost ($MC$) curve, and a long-run average total cost ($LRATC$) curve tangent to the demand curve; profit-maximizing output labeled $Q_m$ and price labeled $P_m$ at the point where $MR = MC$.]
On your graph in part (a), label the output at which total revenue is maximized $Q_R$.
Do firms in this market experience economies of scale, diseconomies of scale, or neither in long-run equilibrium? Explain.