Download Practice Free Response 2013

AP Microeconomics
Name: _______________________
Practice Free Response
Market for T-Shirts
Assume the market for T-shirts is in equilibrium at a price of $16 dollars.
1.
Calculate the elasticity of demand from $16 to $22 dollars using the mid-point method
2.
We know that the price elasticity of demand at a price of $8 dollars would (greater, less) than your answer in
question 1. Explain why….
3.
Calculate the original:
a. Consumer surplus
4.
5.
______________________________
b.
Producer surplus
______________________________
c.
Total Welfare/Surplus
______________________________
d.
Deadweight loss
______________________________
Assume the Government places a $14 tax on the sellers of T-shirts
a. Modify your graph for the effect of this tax & shade in deadweight loss
b.
The new price buyers pay is
____________
c.
The new price sellers receive is
____________
d.
Tax Revenue raised by tax
____________
e.
New consumers surplus is
_____________________ (calculate #)
f.
New producer surplus is
_____________________
g.
Deadweight loss
_____________________
h.
Total Surplus
_____________________
Calculate the tax incidence for the buyer and seller.
(calculate #)
Explain why one group bears more of the tax….
Cigarettes
1) Estimate the elasticity of demand (Ed) for cigarettes. (is Ed > 1 or
Ed < 1)
____________________________ List 2 reasons why: __________________
_________________
2) Use supply and demand analysis to illustrate impact of a per-unit excise tax on each of the following
i)
ii)
iii)
iv)
v)
The price paid by consumer Pb & Ps received by producers and the new equilibrium quantity
The amount of government tax revenue collected
The loss in total welfare (DWL)
The new producer surplus (PS) & consumer surplus (CS)
The formula total welfare after the tax = ________________________________
3) If the demand for cigarettes becomes more elastic, explain how each of the following will change versus your
initial conclusions:
i)
ii)
iii)
iv)
The price and quantity sold of cigarettes
The government tax revenue
The burden of the tax on the consumer and the producer
The gain or loss in total welfare
4) Now assume that economists determine that cigarette smoking has severe spillover costs.
i) Re-draw the first graph with correct labels for the case of spillover costs with a per-unit tax.
i) Hint: Use MC and MB instead of S & D labels
ii) Does total welfare rise or fall after the tax now?