The 2013 AP Microeconomics Exams

1. The 2013AP Microeconomics Exams Dave AndersonCentre College, Chief Reader

2. Agenda • Exam Developers • Scores • Areas of Strength • Areas of Weakness • Discussion

3. MicroeconomicsCommittee ChairPamela M. Schmitt, United States Naval AcademyMichael A. Brody, Menlo School Committee MembersJoyce Jacobsen, Wesleyan UniversityMargaret Ray, Mary Washington CollegeDee Mecham, The Bishop’s SchoolSandra K. Wright, Adlai E. Stevenson High SchoolCollege Board AdvisorMary Kohelis, Brooke High SchoolChief ReaderDavid Anderson, Centre CollegeETS Assessment SpecialistsFekru DebebeHwanwei Zhao Marwa Hassan

4. Exams • 54,000 U.S. Exams • 12,000 International Exams • 2,000 Alternate Exams

5. Mean / Standard Deviation / Max • Monopoly 5.57 2.72 10 • Game Theory / Oligopoly 2.55 1.62 5 • Market Failure 2.82 1.60 6

8. Scores 2013 5 16.7% 4 28.4% 3 20.6% • 2 15.4% • 1 18.9%

9. Scores 2013 5 16.7% 4 28.4% 3 20.6% • 2 15.4% • 1 18.9% 2012 14.8% 28.3% 21.8% • 16.3% • 18.8% • 2011 • 14.6% • 25.9% • 21.6% • 16.0% • 21.9%

10. Students Did Great On • Monopoly Graph • Profit Max Quantity where MR = MC (88%) • Price on Demand Curve above Q* (86%)

11. Students Did Great On • Monopoly Graph • Profit Max Quantity where MR = MC (88%) • Price on Demand Curve above Q* (86%) • Market Equilibrium • Price and quantity found at intersection of Supply and Demand (88%)

12. Students Did Great On • Monopoly Graph • Profit Max Quantity where MR = MC (88%) • Price on Demand Curve above Q* (86%) • Market Equilibrium • Price and quantity found at intersection of Supply and Demand (88%) • Game Theory • Best strategy given other player’s move (73%)

13. Most Common ErrorsAP Microeconomics 2013

14. 8. Quantity with Price Discrimination 7. QE < QS for Positive Externality 6. Relationship between MSB and D 5. Nash Equilibrium Outcomes 4. Determination of Inelastic Demand 3. Why No Dominant Strategy? 2. Show Total Revenue with Price Discrimination Show Deadweight Loss on graph Overview of Trouble Spots

15. 8. Micro 1 (b)(i) Question: Now assume that the monopolist can perfectly price discriminate. Using the labeling on the graph, identify the quantity produced.

16. 8. Micro 1 (b)(i) Answer: Q3. 39.6% answered correctly

17. 7. Micro 3 (c)(i) Question: Now instead assume that all of the neighbors enjoy watching fireworks. In this case, is the market equilibrium quantity of fireworks greater than, less than, or equal to the socially optimal quantity? Explain.

18. 7. Micro 3 (c)(i) Answer: The market equilibrium quantity is less than the socially optimal quantity because the fireworks generate a positive externality. OR because MSB > MPB. OR because MSB > MSC at the market quantity. 38.4% answered correctly

19. 6. Micro 3 (b)(ii) Question: Assume that noise from the fireworks disturbs all of the neighbors. On your graph from part (a), show each of the following. (b) (ii) The marginal social benefit curve, labeled MSB.

20. 6. Micro 3 (b)(ii) Answer: MSC Price ($) (35.6% answered correctly) Supply PE Demand = MSB Quantity QE

21. 6. Micro 3 (b)(ii) Alternative Answer: Price ($) Supply = MSC PE Demand MSB Quantity QE

22. 5. Micro 2 (c)(i & ii) Question: In the Nash Equilibrium, determine each of the following. • PieCrust’s daily profit • LaPizza’s daily profit

23. 5. Micro 2 (c)(i & ii) Question: In the Nash Equilibrium, determine each of the following. • PieCrust’s daily profit • LaPizza’s daily profit

24. 5. Micro 2 (c)(i & ii) Question: In the Nash Equilibrium, determine each of the following. • PieCrust’s daily profit • LaPizza’s daily profit

25. 5. Micro 2 (c)(i & ii) Question: In the Nash Equilibrium, determine each of the following. • PieCrust’s daily profit • LaPizza’s daily profit

26. 5. Micro 2 (c)(i & ii) Question: In the Nash Equilibrium, determine each of the following. • PieCrust’s daily profit • LaPizza’s daily profit

27. 5. Micro 2 (c)(i & ii) Answer: In the Nash Equilibrium: • PieCrust’s daily profit is $450 • LaPizza’s daily profit is $300 32.4% Answered Correctly

28. 4. Micro 1 (e) Question: Is point f in the elastic inelastic, or unit elastic portion of the demand curve? Explain.

29. Price Elastic Range Inelastic range Demand 0 Quantity Marginal Revenue Price Total Revenue 0 Quantity

30. 4. Micro 1 (e) Answer: Point f is in the inelastic portion of the demand curve because MR is negative ORbecause TR is falling as Q increases. 32.0% Answered Correctly

31. 3. Micro 2 (b)(ii) Question: What is the dominant strategy, if any, for LaPizza? Explain using the dollar values in the payoff matrix.

32. 3. Micro 2 (b)(ii)

33. 3. Micro 2 (b)(ii)

34. 3. Micro 2 (b)(ii)

35. 3. Micro 2 (b)(ii)

36. 3. Micro 2 (b)(ii) LaPizza does not have a dominant strategy because his best choice depends on the strategy chosen by PieCrust. If PieCrust advertises, LaPizza does better by not advertising because the $300 he earns by advertising is larger than the $200 he earns by not advertising. If PieCrust does not advertise, LaPizza does better by advertising: $500 > $400.

37. 3. Micro 2 (b)(ii) 30.4% Answered Correctly

38. 2. Micro 1 (b)(ii) Question: Now assume that the monopolist can perfectly price discriminate. Using the labeling on the graph, identify the total revenue of the monopolist.

39. Answer: P4fQ30. 19.7% Answered Correctly

40. 1. Micro 3 (b)(iii) Question: Assume that noise from the fireworks disturbs all of the neighbors. On your graph from part (a), show each of the following. (iii) The deadweight loss, if any, shaded completely.

41. Price ($) Supply PE Demand Quantity QE

42. MSC Price ($) Supply PE Demand = MSB Quantity QE

43. MSC Price ($) Supply PE Demand = MSB Quantity QE 16.2% Answered Correctly (credit was given for consistency with an incorrect answer in an earlier part of the question)