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AP Microeconomics Free Response Questions Label Graphs Clearly and Correctly • Label both axes • Label all curves • Label curve shifts using arrows, dotted line, and numbers (e.g., S1 and S2) • Label price changes and quantity changes using arrows and numbers (e.g., P1 and P2) Example: Supply and Demand - Axes labeled P S1 - S and D labeled S2 - S shift labeled - Equilibrium labeled Pe - Q change labeled - P change labeled - Directional arrows used P2 D Qe Q2 Q Mistakes/Suggestions • Mislabeled or unlabeled graphs • Missing or unlabeled P and Q changes • Side-by-side graphs drawn as anything but sideby-side • Teeny, tiny graphs • Messy and illegible….really messy and really illegible….graphs • Use proper terms • Track answer format to question format • Answer questions in any order Tips • • • • • • • • • • • • • • • • • • Big Two for free-response: Market structure & factor markets Free-response prediction…externality??...game theory?? Product market v. factor market Firm v. industry….Firm: (a) price taker (b) “can sell/hire all it wants” (c) horizontal curve “Profit-maximizing” signifies producing at MC = MR…not necessarily experiencing positive profit Lots of Qs about how much to produce…look at where firm is w/ respect to MC = MR Lump-sum taxes (or subsidies) shift total cost curves whereas per-unit taxes (or subsidies) shift marginal cost curves or marginal revenue curves Patent or license….synonymous with monopoly Elasticity and demand curve….above mid-point (MR positive): elastic; below mid-point (MR negative): inelastic; at mid-point (MR = 0), unit elastic Monopsony….sole buyer VMPL is synonymous with MRP Horizontal (e.g., own all burger producers) v. vertical integration (e.g., own/control all aspects of burger production…cows, potatoes, trains to ship cows/potatoes, straws, cups, etc.) Watch for “True…False…Uncertain” format on free-response questions Allocative (or economic) efficiency: P = MC Technical(or productive)efficiency: P = min ATC “Normal” profit is synonymous with zero economic profit Least cost allocation: VMPL/w = VMPK/r….MRP/w = MRP/w… Gini coefficient (i.e., Gini index)….income inequality…Lorenz curve
