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Microeconomics Practice Exam From the 2013 Administration This Practice Exam is provided by the College Board for AP Exam preparation. Teachers are permitted to download the materials and make copies to use with their students in a classr oom setting only. To maintain the security of this exam, teachers should collect all materials after their administration and keep them in a secure location . Exams may not be posted on school or personal websites, nor electronically redistributed for any reason. Further distribution of these materials outside of the secure College Board site disadvantages teachers who rely on uncirculated questions for classroom testing. Any additional distribution is in violation of the College Board’s copyright policies and may result in the termination of Practice Exam access for your school as well as the removal of access to other online services such as the AP Teacher Community and Online Score Reports .
Contents Exam Instructions Student Answer Sheet for the Multiple -Choice Section Secti on I: Multiple -Choice Questions Section II: Free- Response Questions Multiple -Choice Answer Key Free -Response Scoring Guidelines Scoring Worksheet Note: This publication shows the page numbers that appeared in the 2012−13 AP Ex a m Instructions book and in the actual exam. This publication was not repaginated to begin with page 1. © 2013 The College Board. College Board, Advanced Placement Program, AP, SAT and the acorn logo are registered trademarks of the College Board. All other products and services may be trademarks of their respective owners. Permission to use copyrighted College Board materials may be requested online at: www.collegeboard.com/inquiry/cbpermit.html.
B Exam Instructions The fol lowing c ontains instructions taken from the 2012−13 AP Exam Instructions book.
AP® Microeconomics Exam Regularly Scheduled Exam Date: Thursday afternoon, May 16, 2013 Late-Testing Exam Date: Wednesday afternoon, May 22, 2013 70 Section I: At a Glance Total Time: 1 hour, 10 minutes Number of Questions: 60 Percent of Total Score: 66.6% Writing Instrument: Pencil required Section I: Multiple Choice Booklet Instructions Section I of this exam contains 60 multiple-choice questions. Fill in only the circles for numbers 1 through 60 on your answer sheet. Indicate all of your answers to the multiple-choice questions on the answer sheet. No credit will be given for anything written in this exam booklet, but you may use the booklet for notes or scratch work. After you have decided which of the suggested answers is best, completely fill in the corresponding circle on the answer sheet. Give only one answer to each question. If you change an answer, be sure that the previous mark is erased completely. Use your time effectively, working as quickly as you can without losing accuracy. Do not spend too much time on any one question. Go on to other questions and come back to the ones you have not answered if you have time. It is not expected that everyone will know the answers to all of the multiple-choice questions. Your total score on the multiple-choice section is based only on the number of questions answered correctly. Points are not deducted for incorrect answers or unanswered questions. Section II: At a Glance Total Time: 1 hour Number of Questions: 3 Percent of Total Score: 33.3% Writing Instrument: Pen with black or dark blue ink Reading Period Time: 10 minutes Use this time to read the questions and plan your answers. Writing Period Time: 50 minutes Question 1 Suggested Time: 25 minutes Percent of Section II Score: 50% Question 2 Suggested Time: 12.5 minutes Percent of Section II Score: 25% Question 3 Suggested Time: 12.5 minutes Percent of Section II Score: 25% Secti on II: Free Response Booklet Instructions The ques tions for Section II are printed in this booklet. You may use page 3 of this booklet to organize your answers and for scratch work, but you must write your answers on the lined pages provided for each question. The proctor will announce the beginning and end of the reading period. You are advised to spend the 10-minute period reading all the questions, and to use page 3 to sketch graphs, make notes, and plan your answers. Do NOT begin writing on the lined pages until the proctor tells you to do so. Write clearly and legibly. Do not skip lines. Cross out any errors you make; crossed-out work will not be scored. Manage your time carefully. You may proceed freely from one question to the next. You may review your responses if you finish before the end of the exam is announced.
What Proctors Need to Bring to This Exam • • • • • • • Exam packets Answer sheets AP Student Packs 2012-13 AP Coordinator’s Manual This book — AP Exam Instructions School Code and Home-School/Self- Study Codes Pencil sharpener • • • • • • Extra No. 2 pencils with erasers Extra pens with black or dark blue ink Lined paper Stapler Wa t c h Signs for the door to the testing room “Exam in Progress” “Cell phones are prohibited in the testing room” – – SECTION I: Multiple Choice ! Do not begin the exam instructions below until you have completed the appropriate General Instructions for your group. Make sure you begin the exam at the designated time. Macroeconomics If you are giving the regularly scheduled exam, say: It is Thursday morning, May 16, and you will be taking the AP Macroeconomics Exam. If you are giving the alternate exam for late testing, say: It is Wednesday morning, May 22, and you will be taking the AP Macroeconomics Exam. Microeconomics If you are giving the regularly scheduled exam, say: It is Thursday afternoon, May 16, and you will be taking the AP Microeconomics Exam. If you are giving the alternate exam for late testing, say: It is Wednesday afternoon, May 22, and you will be taking the AP Microeconomics Exam. In a moment, you will open the packet that contains your exam materials. By opening this packet, you agree to all of the AP Program’s policies and procedures outlined in the 2012-13 Bulletin for AP Students and Parents . You may now remove the shrinkwrap from your exam packet and take out the Section I booklet, but do not open the booklet or the shrinkwrapped Section II materials. Put the white seals aside. . . . 71 AP Exam Instructions ECONOMICS
Carefully remove the AP Exam label found near the top left of your exam booklet cover. Now place it on page 1 of your answer sheet on the dark blue box near the top right-hand corner that reads “AP Exam Label.” If students accidentally place the exam label in the space for the number label or vice versa, advise them to leave the labels in place. They should not try to remove the label; their exam will be processed correctly. Read the statements on the front cover of Section I and look up when you have finished. . . . Sign your name and write today’s date. Look up when you have finished. . . . Now print your full legal name where indicated. Are there any questions? . . . Turn to the back cover and read it completely. Look up when you have finished. . . . Are there any questions? . . . Section I is the multiple-choice portion of the exam. You may never discuss these specific multiple-choice questions at any time in any form with anyone, including your teacher and other students. If you disclose these questions through any means, your AP Exam score will be canceled. Are there any questions? . . . You must complete the answer sheet using a No. 2 pencil only. Mark all of your responses beginning on page 2 of your answer sheet, one response per question. Completely fill in the circles. If you need to erase, do so carefully and completely. No credit will be given for anything written in the exam booklet. Scratch paper is not allowed, but you may use the margins or any blank space in the exam booklet for scratch work. Calculators are not allowed on any part of this exam. Are there any questions? . . . You have 1 hour and 10 minutes for this section. Open your Section I booklet and begin. Note Start Time here . Note Stop Time here . Check that students are marking their answers in pencil on their answer sheets, and that they are not looking at their shrinkwrapped Section II booklets. After 1 hour and 10 minutes, say: Stop working. Close your booklet and put your answer sheet on your desk, face up. Make sure you have your AP number label and an AP Exam label on page 1 of your answer sheet. I will now collect your answer sheet. Collect an answer sheet from each student. Check that each answer sheet has an AP number label and an AP Exam label. Then say: Now you must seal your exam booklet. Remove the white seals from the backing and press one on each area of your exam booklet cover marked “PLACE SEAL HERE.” Fold each seal over the back cover. When you have finished, place the booklet on your desk, face up. I will now collect your Section I booklet. . . . 12 6 3 9 72 Economics
Collect a Section I booklet from each student. Check that each student has signed the front cover of the sealed Section I booklet. There is a 10-minute break between Sections I and II. When all Section I materials have been collected and accounted for and you are ready for the break, say: Please listen carefully to these instructions before we take a 10-minute break. Everything you placed under your chair at the beginning of the exam must stay there. Leave your shrinkwrapped Section II packet on your desk during the break. You are not allowed to consult teachers, other students, or textbooks about the exam during the break. You may not make phone calls, send text messages, check email, use a social networking site, or access any electronic or communication device. Remember, you are not allowed to discuss the multiple-choice section of this exam. If you do not follow these rules, your score could be canceled. Are there any questions? . . . You may begin your break. Testing will resume at . 12 6 3 9 SECTION II: Free Response After the break, say: May I have everyone’s attention? Place your Student Pack on your desk. . . . You may now remove the shrinkwrap from the Section II packet, but do not open the exam booklet until you are told to do so. . . . Read the bulleted statements on the front cover of the exam booklet. Look up when you have finished. . . . Now place an AP number label on the shaded box. If you don’t have any AP number labels, write your AP number in the box. Look up when you have finished. . . . Read the last statement. . . . Using your pen, print the first, middle and last initials of your legal name in the boxes and print today’s date where indicated. This constitutes your signature and your agreement to the statements on the front cover. . . . Turn to the back cover and complete Item 1 under “Important Identification Information.” Print the first two letters of your last name and the first letter of your first name in the boxes. Look up when you have finished. . . . In Item 2, print your date of birth in the boxes. . . . In Item 3, write the school code you printed on the front of your Student Pack in the boxes. . . . Read Item 4. . . . Are there any questions? . . . 73 AP Exam Instructions ECONOMICS
I need to collect the Student Pack from anyone who will be taking another AP Exam. You may keep it only if you are not taking any other AP Exams this year. If you have no other AP Exams to take, place your Student Pack under your chair now. . . . While Student Packs are being collected, read the information on the back cover of the exam booklet. Do not open the booklet until you are told to do so. Look up when you have finished. . . . Collect the Student Packs. Then say: Are there any questions? . . . Section II begins with a 10-minute reading period. During the reading period, you will read and plan what you will write. You may use page 3 and the pages the questions are printed on to take notes or plan your answers. Are there any questions? . . . You may now begin the 10-minute reading period. Note Start Time here . Note Stop Time here . Check that students are writing any notes in the appropriate areas in the Section II booklet. If any students begin writing their responses during this time, remind them that the reading period is not yet over, and that the reading period is designed to provide students with time to develop better organized, higher scoring responses. If the students choose to continue writing responses, take no further action. After 10 minutes, say: Stop. The reading period is over. You have 50 minutes to complete Section II. You are responsible for pacing yourself, and may proceed freely from one question to the next. You must write your answers in the Section II booklet using a pen. You are not permitted to use other colored pens or pencils to draw graphs or diagrams. If you need more paper during the exam, raise your hand. At the top of each extra piece of paper you use, be sure to write only your AP number and the number of the question you are working on. Do not write your name. Are there any questions? . . . You may begin. Note Start Time here . Note Stop Time here . Check that students are using pens and that they are writing their answers in their exam booklets. After 40 minutes, say: There are 10 minutes remaining. After 10 minutes, say: Stop working and close your exam booklet. Place it on your desk, face up. . . . If any students used extra paper for the free-response section, have those students staple the extra sheet/s to the first page corresponding to that question in their exam booklets. Then say: Remain in your seat, without talking, while the exam materials are collected. . . . 12 6 3 9 12 6 3 9 74 Economics
Collect a Section II booklet from each student. Check for the following:Exam booklet front cover: The student placed an AP number label on the shaded box, and printed his or her initials and today’s date. Exam booklet back cover: The student completed the “Important Identification Information” area. When all exam materials have been collected and accounted for, return to students any electronic devices you may have collected before the start of the exam. If you are giving the regularly scheduled exam, say: You may not discuss these specific free-response questions with anyone unless they are released on the College Board website in about two days. Your AP score results will be delivered online in July. If you are giving the alternate exam for late testing, say: None of the questions in this exam may ever be discussed or shared in any way at any time. Your AP score results will be delivered online in July. If any students completed the AP number card at the beginning of this exam, say: Please remember to take your AP number card with you. You will need the information on this card to view your scores and order AP score reporting services online. Then say: You are now dismissed. All exam materials should be put in secure storage until they are returned to the AP Program after your school’s last administration. Before storing materials, check the “School Use Only” section on page 1 of the answer sheet and: Fill in the appropriate section number circle in order to access a separate AP Instructional Planning Report (for regularly scheduled exams only) or subject score roster at the class section or teacher level. See “Post-Exam Activities” in the 2012-13 AP Coordinator’s Manual . Check your list of students who are eligible for fee reductions and fill in the appropriate circle on their registration answer sheets. • • • • 75 AP Exam Instructions ECONOMICS
B Student Answer Sheet for the Multiple -Choice Section Us e this section to capture student responses. (Note that the following answer sheet is a sample, and may differ from one used in an actual exam.)
B Section I: Multiple -Choice Questions This is the multiple -choice section of the 201 3 AP exam. It includes cover material and other administrative instructions to help familiarize students with the mechanics of the exam. (Note that future exams may differ in look from the following content.)
AP ® Microeconomics Exam2013 SECTION I: Multiple Choice DO NOT OPEN THIS BOOKLET UNTIL YOU ARE TOLD TO DO SO. At a Glance Total Time1 hour, 10 minutes Number of Questions60 Percent of Total Score66.67% Writing InstrumentPencil required Instructions Section I of this exam contains 60 multiple-choice questions.Fill in only the circles for numbers 1 through 60 on your answer sheet. Indicate all of your answers to the multiple- choice questions on the answer sheet.No credit will be given for anything written in this exam booklet, but you may use the booklet for notes or scratch work. After you have decided which of the suggested answers is best, completely fill in the corresponding circle on the answer sheet. Give only one answer to each question. If you change an answer, be sure that the previous mark is erased completely. Here is a sample question and answer. Use your time effectively, working as quickly as you can without losing accuracy. Do not spend too much time on any one question. Go on to other questions and come back to the ones you have not answered if you have time. It is not expected that everyone will know the answers to all of the multiple- choice questions. Your total score on the multiple- choice section is based only on the number of questions answered correctly. Points are not deducted for incorrect answers or unanswered questions. Form I Form Code 4JBP4-S 34
-2- The inclusion of source material in this exam is not intended as an endorsement by the College Board or ETS of the content, ideas, or values expressed in the material. The material has been selected by the economics faculty who serve on the AP Microeconomics Development Committee. In their judgment, the material printed here reflects various aspects of the course of study on which this exam is based and is therefore a ppropriate to use to measure the skills and knowledge of this course.
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -3- MICROECONOMICS Section I Time —70 minutes 60 Questions Directions: Each of the qu estions or incomplete statements below is followe d by five suggest ed answers or completions. Select the one that is be st in each case and then fil l in the corresponding circle on the answer sheet. 1. After graduating from high school, Maria chose to go to college, while Omar chose to work full- time. Which of the followi ng best describes the opport unity costs for these decisions? (A) Maria’s opportunity cost in cludes the salary she could have earned if she had gone to work. (B) Maria’s opportunity cost is her living expenses while attending college. (C) Omar’s oppor tunity cost is the salary he will earn from wo rking. (D) Omar’s oppor tunity cost is the tuition and expenses he would have paid for college. (E) Omar’s oppor tunity cost is definitely greater than Maria’s. 2. The basic eco nomic problem of all economies is essentially one of deciding how to make the best use of (A) unlimited resources to satisfy unlimited wants (B) limited resources to satisfy unlimited wants (C) unlimited resources to satisfy limited wants (D) limited resources to satisfy limited wants (E) limited resources to provide public goods 3. The diagram above shows the demand curve for a good. If the price increases from to , and quantity consumed decreases from to , consumer surp lus decreases by the area (A) (B) (C) (D) (E)
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -4- 4. If the government imposes a tariff on imports of cheese, the price and quantity of imported cheese will most likely change in which of the following ways? Price Quantity (A) Decrease Decrease (B) Decrease Increase (C) Increase Not change (D) Increase Decrease (E) Increase Increase 5. According to the law of demand, an increase in the price of grape juice wil l result in (A) a rightward shift in the demand curve for grape juice (B) a leftward shift in the demand curve for grape juice (C) a decrease in the demand for orange juice, a substitute (D) a decrease in the quantity of grape juice demanded (E) an increase in the quantity of grape juice supplied Jill’s Demand All other consumers’ Demand Market Supply Price Quantity Quantity Quantity $ 8 140 5,200 5,750 $7 150 5,400 5,550 $6 160 5,600 5,350 $5 170 5,800 5,150 $4 180 6,000 4,950 6. The table above shows the demand schedules for Jill and for all other consumers, as well as the market supply schedule for the same good. The equilibrium price in this market is (A) $8 (B) $7 (C) $6 (D) $5 (E) $4 7. Which of the following is true of the marginal cost curve? (A) It intersects the average variable cost curve and the average total cost curve at each curve’s minimum point. (B) It intersects the average variable cost curve and the average fixed cost curve at each curve’s minimum point. (C) It lies between the total cost curve and the total variable cost curve. (D) It increases initially, for a time, but begins to decline when the point of diminishing returns is reached. (E) It decreases, because average variable cost is less than marginal cost. 8. If the marginal cost of producing t he first unit of some good is $20 and the marginal cost of producing the second unit is $30, the average variable cost of producing 2 units is (A) $5 (B) $10 (C) $20 (D) $25 (E) $50 9. The use of game theory to explain strategic behavior among firms is most associated with which of the following market structures? (A) Perfect competition (B) Monopolistic competition (C) Oligopoly (D) Monopoly (E) Monopsony 1 0. All of the following are essential characteristics of a perfectly competitive industry EXCEPT: (A) All products produced by the firms in the industry are homogeneous. (B) All firms in the industry are price takers. (C) All consumers and firms are completely aware of the prices at which transactions take place in the industry. (D) There are barriers to entry into and exit from the industry. (E) Price is equal to marginal revenue for every firm in the industry.
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -5- 11. The marginal revenue product of labor is the (A) product price times the wage rate (B) additional revenue a firm earns when it employs an additional unit of labor (C) increase in the average product of labor when the firm employs an additional unit of labor (D) increase in the price of labor when the firm employs an additional unit of labor (E) marginal revenue plus product price 12. For a competitive labor market, an increase in which of the following will lead to an increase in the demand for labor? (A) The supply of labor (B) The minimum wage (C) The cost of medical benefits pro- vided to the labor hired by firms (D) Labor union dues (E) The demand for the good that labor produces 13. Which of the following indicates that a perfectly competitive firm is in long-run equilibrium? (A) Price equals marginal cost. (B) Price equals average revenue. (C) Price equals marginal cost, which equals average total cost. (D) Price equals average revenue, which equals marginal revenue. (E) Price equals average fixed cost. 14. Which of the following best represents a positive externality? (A) Purchasing a pass for an amusement park (B) Dining at a favorite restaurant (C) Being disturbed by neighboring construction noise (D) Enjoying watching birds at a neighbor’s bird feeder (E) Dumping waste on someone else’s property 15. Which of the following is a characteristic of a public good? (A) It is excludable. (B) It is nonrival in consumption. (C) It yields substantial spillover costs. (D) The private sector would produce a larger than socially optimal quantity. (E) Private-sector producers would realize too great a profit. 16. If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize profits it should (A) increase the level of production (B) decrease the level of production (C) maintain current level of production (D) increase price (E) decrease price 17. If cotton is used to produce towels, an increase in the price of cotton will result in which of the following changes in the towel market? (A) A decrease in the demand for towels, which leads to a shortage of towels followed by upward pressure on the price of towels (B) A decrease in the demand for towels, which leads to a surplus of towels followed by downward pressure on the price of towels (C) A decrease in the supply of towels, which leads to a shortage of towels followed by upward pressure on the price of towels (D) An increase in the supply of towels, which leads to a surplus of towels followed by downward pressure on the price of towels (E) An increase in both the demand and supply of towels, which leads to a surplus of towels followed by upward pressure on the price of towels
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -6- 18. Assume that an economy produces televisions and shoes. Which of the following would cause the production possibilities curve for this economy to shift outward? (A) An increase in the labor force (B) An increase in the prices of both goods (C) An increase in the prices of resources used to produce both goods (D) A decrease in the demand for shoes (E) A change in consumers’ tastes in favor of televisions Goods Price Quantity Purchased (units) Marginal Utility (utils) Soda $1 10 10 Apples $2 5 25 19. Jane spends all her weekly allowance to buy only two goo ds: soda and apples. According to the table above, if her preferences are characterized by the law of diminishing marginal utility, then which of the following statements is correct? (A) Jane is maximizing her utility. (B) Jane can buy more apples and less soda to maximize her utility. (C) Jane can buy more soda and fewer apples to maximize her utility. (D) Jane can buy more apples and the same amount of soda to maximize her utility. (E) Jane can buy more soda and the same amount of apples to maximize her utility. 20. If a firm is experiencing economies of scale, which of the following will decrease as output increases? (A) Fixed cost (B) Long-run total cost (C) Long-run average total cost (D) Marginal cost (E) Marginal revenue 21. The table below shows a production function for a firm. Units of Variable Input Total Product 1 10 2 22 3 40 4 60 5 68 6 74 7 76 8 68 9 50 10 20 All of the following can be concluded from the information in the table EXCEPT: (A) Diminishing marginal returns set in after the fourth un it of the variable input. (B) Marginal product is positive if total product is increasing. (C) This is a prod uction function for a perfectly competitive firm. (D) A profit-maximizing firm would never voluntarily employ the eighth unit of the variable input. (E) Total product starts to decrease when mar- ginal product changes from positive to negative. 22. The cross-price elasticity of demand between good X and good Z measures the percentage change in the quantity demanded of good X in response to a percentage change in (A) the price of good X (B) income (C) the price of g ood Z (D) the supply of good Z (E) total expenditures on good Z
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -7- Question 23 is based on the graph below, which show s the cost curves for a perfectly competitive firm. 23. Which of the following segments of the marginal cost curve lies entirely on the firm’s short-run supply curve? (A) TUV (B) STU (C) RSTU (D) RSTUV (E) RS
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -8- 24. Assuming a downward-sloping demand curve and an upward-sloping supply curve, which of the following will occur as a result of an increase in the sales tax on a good? (A) Supply will increase. (B) Demand will increase. (C) Quantity supplied will increase. (D) Quantity demanded will decrease. (E) The price paid by consumers will decrease. 25. Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should (A) close down in the short run (B) operate in the short run, even though it will sustain a loss (C) operate in the short run, because it will make an economic profit of $3 per unit (D) operate in the long run, because it will make an economic profit of $3 per unit (E) operate in the short run, but decrease output to decrease its cost 26. Which of the following is t rue for a monopolistically competitive firm in long-run equilibrium? (A) It earns a normal profit. (B) It sets price equal to marginal cost. (C) It is allocatively efficient. (D) It is a price taker. (E) It produces at minimum average total cost. 27. A monopolist introd uces a technological innovation that lowers the marginal cost and average cost of production. The price of the good and the level of output are most likely to change in which of the following ways? Price Level of Output (A) Remain constant Remain constant (B) Remain constant Increase (C) Increase Decrease (D) Decrease Increase (E) Decrease Remain constant 28. Marginal resource (factor) cost can be defined as (A) the change in total resource cost caused by the production of on e more unit of output (B) the change in total revenue caused by the addition of on e more unit of a resource (C) the change in total resource cost caused by the addition of one more unit of a resource (D) the total resource cost divided by the number of inputs used (E) total resource cost divided by output 29. If the government imposes a per-unit tax on the output of a monopoly with a downward-sloping demand curve, the burden of the tax will be (A) borne entirely by consumers (B) borne entirely by the monopolist (C) borne entirely by the government (D) shared by the monopolist and the government (E) shared by consumers and the monopolist 30. Which of the following is true when there are negative externalities as sociated with the production of a good? (A) The market will adjust automatically to equate marginal social costs and marginal social benefits. (B) Marginal social costs will exceed marginal private costs unless businesses are forced to internalize the external costs. (C) Marginal private costs will exceed marginal social costs, but the government can correct the problem. (D) Producers should be subsidized so that they will produce more of the good. (E) Consumers should be subsidized so that they will consume more of the good.
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -9- Brazil Spain Corn 2 ho urs of labor 4 hours of labor Shoes 8 hours of labor 12 hours of labor 31. The table above shows the amount of labor required to pr oduce a unit of corn and a unit of shoes in Brazil and Spain. If both countries have equal numbers of workers, what pattern of international trade between Brazil and Spain is most likely to emerge? (A) Brazil will export both corn and shoes. (B) Spain will export both corn and shoes. (C) No mutually beneficial trade can occur. (D) Brazil will export corn and import shoes. (E) Brazil will import corn and export shoes. 32. Which of the following changes in the demand for and the supply of a good would necessarily lead to a decrease in the equilibrium quantity of the good in the market in the short run? Demand Supply (A) Increase Decrease (B) Increase No change (C) Decrease Increase (D) Decrease Decrease (E) No change Increase 33. Assume that mustard and ketchup are considered substitutes by consumers. If the price of mustard increases, which of the following graphs represents the most likely response in the ketchup market? (A) (B) (B) (C) (C) (D) (E) (E)
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -10- 34. Which of the following is a result of increasing returns to sale? (A) Upward-sloping short-run marginal cost curve (B) Downward-sloping marginal physical product of labor curve (C) Downward-sloping long-run average total cost curve (D) Diseconomies of scale (E) Diminishing returns 35. Moving from left to right along a downward-sloping linear demand curve, price elasticity varies in which of the following ways? (A) First unit elastic, then inelastic throughout (B) First unit elastic, then elastic throughout (C) First inelastic, then unit elastic throughout (D) First elastic, then unit elastic, and finally inelastic (E) First inelastic, then unit elastic, and finally elastic 36. At its current employm ent level of labor and capital, a firm observes the following. Marginal product of labor = 30 units Marginal product of capital = 60 units Price of labor = $3 per unit Price of capital = $15 per unit Which of the following acti ons should the firm take in order to achieve the least-cost combination of labor and capital and produce the same level of output? • • • • Labor Capital (A) Increase Increase (B) Increase Decrease (C) Decrease Increase (D) Decrease Decrease (E) No change No change
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -11- Question 37 is based on the information below. The table below shows the profits associated with the stra tegies of two oligopolistic firms, Lock and Star, that must choose between a high price and a low price for thei r products. The first entry in each box is the profits received by Lock, and the second entry is the profits received by Star. 37. If Lock chooses to charge the low price, the best course of action for Star would be to charge the (A) low price and earn a profit of $40 (B) low price and earn a profit of $50 (C) high price and earn a profit of $50 (D) high price and earn a profit of $70 (E) high price and incur a loss of $20
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -12- 38. One difference between a firm in a perfectly competitive market and an unregulated monopoly is that the (A) perfectly competitive firm can increase the quantity it sells at the market price, whereas the monopoly must lower its price to sell more (B) perfectly competitive firm sells differentiated products, whereas the monopoly sells a homogeneous product (C) price elasticity of demand for a monopoly is much higher than that for a perfectly competitive firm (D) monopolist seeks to maxi mize profits, whereas the perfectly competitive firm maximizes revenues (E) monopolist can never change a price, whereas the perfect competitor can 39. Assume that olive oil is produced in a constant- cost, perfectly competitive industry, which is currently in long-run equilibrium. If the current price of olive oil is $5 per quart and the demand for olive oil increases, then the price of olive oil will change in which of the following ways in the short run and long run? Short Run Long Run (A) Be more than $5 Be more than $5 (B) Be more than $5 Be equal to $5 (C) Be equal to $5 Be equal to $5 (D) Be less than $5 Be less than $5 (E) Be less than $5 Be equal to $5 40. Which of the following is always true of a monopoly that is producing a level of output such that marginal revenue is negative? (A) It is experiencing economies of scale in production. (B) It is maximizing total revenue. (C) It is producing where demand is price elastic. (D) It could lower price to increase profits. (E) It could decrease output to increase profits. 41. A cartel is difficult to maintain for which of the following reasons? (A) Consumers substitute away from the good when the price increases. (B) Individual cartel members are tempted to cheat on the agreement. (C) Although the total gain to cartel members is positive, all members lose when everyone sticks to the agreement. (D) Some firms will reduce output in an effort to lower costs of production. (E) Oligopolistic behavior is generally predictable. 42. Economists argue that most professional athletes earn economic rent because they (A) make additional income through commercial endorsements of products (B) are able to participate in sports for only a limited number of years before changing occupations (C) earn far more as professional athletes than they could earn in their next-best occupation (D) participate in sporting events only about six months during a year (E) work less than 40 hours a week during the sport season
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -13- 43. For the firm shown in th e graph above, which combination of output and price will maximize its profit? Output Price (A) (B) (C) (D) (E) 44. A monopolist is inefficient from society’s point of view because (A) it overprodu ces output and charges a price above marginal cost (B) it underprodu ces output and charges a price above marginal cost (C) it sometimes colludes with other firms to obtain hi gher prices (D) the price the monopolist ch arges is too low and it does not advertise (E) consumers mu st pay whatever price the monopolist charges 45. Suppose th at at the current output level the mar- ginal social cost of pro ducing a go od is greater than its marginal private cost, and that the mar- ginal social benefit associated with prod uction of the good is equal to its marginal private benefit. Which of the following go vernment actions would most likely increase efficiency? (A) Taxing the production of the good (B) Taxing the pr oduction of substitute goods (C) Giving tax re bates to peopl e who purchase the good (D) Sub sidizing p roducti on of complementary goods (E) Subsidizing c onsumption o f the good 46. Suppose that in one week Sam can knit 5 sweaters or make 4 blankets and Ro b can knit 10 sweaters or make 6 blankets. Which of the following is true? (A) Sam has an absolute advan tage in making blankets. (B) Sam has an absolute advantage in knitting sweaters. (C) Sam has a comparative ad vantage in making blankets. (D) Sam has a comparative advantage in k nitting sweaters. (E) Sam has neither a comparative nor an absolute advantage in knitti ng sweaters or making blankets.
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -14- 47. If t he market depicted in t he diagram above is initially in equilibrium, which of the foll owing will result from the government’s setting a price ceiling at ? (A) Quantity demanded will exceed quantity su pplied. (B) Quantity supplied will exceed quantity demanded. (C) Market price will increase. (D) Market price will be unaffected. (E) Market price will decrease. 48. An increase in the supply of coffee could be caused b y (A) a decrease in the price of cream, which is a complement to coffee (B) a decrease in the cost of labor used to produce coffee (C) an increase in consumer i ncome (D) an increase in the demand for c offee (E) an increase in the price of coffee 49. Which of the following explains why a decrease in the price of a normal good will lead to an increase in the quantity de manded of the good? (A) A lower price will increase consumers’ purchasing power. (B) A lower price will increase consumers’ marginal utility. (C) A lower price will increase demand for the good. (D) A lower price will increase demand for substitute goods. (E) A lower price will decrease demand for complementary goods. 50. If SteveR Incorporated is a monopolistic producer of diamonds, the firm’s demand curve is down- ward sloping because (A) the number of diamonds SteveR Incorporated offers for sale affects the price of diamonds (B) marginal revenue is negati v e through out the ran ge o f the dema nd curve (C) marginal revenue is positive throughout the ran ge o f the dema nd curve (D) the diamond i ndustry consists of a few firms selling similar diamonds (E) the demand for diamonds is inelastic
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -15- 51. Over the past 5 years, 50 new restaurants have opene d and 30 have closed in the city of Zuni. Currently there are 110 restaurants operating in the city. Which of the following best represents the market structure, barriers to entry, and economic profits in the long run? Market Structure Barriers to Entry Long-Run Economic Profits (A) Perfect competition Low Negative (B) Perfect competition High Positive (C) Monopolistic competition Low Zero (D) Monopolistic competition High Positive (E) Monopolistic competition High Zero 52. For a perfectly competitive, increasing-cost industry, an i ncrease in the industry’s demand will lead to which of the following in the long run? (A) An upward shift in each firm’s long-run average cost curve (B) An increase in each firm’s profit (C) A decrease in the price of an input and a decrease in total industry profits (D) A decrease in total industry sales (E) A decrease in total producer surplus and an increase in total consumer surplus 53. If a good is a vailable free of charge, an individual will consume it until (A) marginal utility is zero (B) average utility is zero (C) total utility is zero (D) marginal utility equals average utility (E) marginal utility equals total utility 54. If a competitive firm pays its workers the value of the marginal product of the last worker hired, which of the following is true? (A) The firm will not earn any economic profits. (B) Workers will look for employment elsewhere. (C) The wage will be less than the marginal product. (D) The firm will not maximize profits. (E) The contribution of the last worker hired to the firm’s profit will be zero. 55. Which of the following is neces sary for a firm to practice price discrimination? (A) The government strictly enforces antitrust laws. (B) The firm is a member of a cartel. (C) The firm can prevent resale of its goods. (D) The demand curve for the product is perfectly inelastic. (E) The demand curve for the product is perfectly elastic.
56. A monopolistically competitive firm’s demand curve will be highly elastic if which of th e following exists? (A) A high degree of product differentiation (B) A highly elastic supply curve for the firm (C) High barriers to entry in this industry (D) A high degre e of product substitutability (E) A small number of competitors 57. Country A has a Gini coefficient of 0.5, and Country B has a Gini coefficient of 0.3. Which of the following statements is definitely true? (A) Country A ha s higher average income than Country B. (B) Country B has higher average income than Country A. (C) Income is more evenly distributed in Country A than in Country B. (D) Income is more evenly distributed in Country B than in Country A. (E) Country A has more deadweight loss than Country B. 58 . If labor is the only variab le input of a firm and the marginal product of labor is falling, the firm will always produce (A) more than the profit-maximizing level of output (B) less than the profit-maximizing level of output (C) at a level of output where average total c ost is at a minimum (D) at a level of output where marginal costs are rising (E) at a level of output where average variable costs are falling Unauthorized copying or reuse of any part of this page is illegal. 59. The graph above shows the conditions that a monopsonist faces in a labor market. How many workers would this monop sonist hire and what wage rate would it pay? Number of Workers Wage Rate (A) 5 $37.50 (B) 10 30 (C) 10 20 (D) 14 24 (E) 14 37.50 60. Public goods are underproduced in a competitive market beca use the free-rider problem causes which of the following? (A) Fixed supply (B) Effective price ceilings (C) Reduced market demand (D) Negative externalities (E) Increased imports
-17- END OF SECTION I IF YOU FINISH BEFORE TIME IS CALLED, YOU MAY CHECK YOUR WORK ON THIS SECTION. DO NOT GO ON TO SECTION II UNTIL YOU ARE TOLD TO DO SO . MAKE SUR E YOU HAVE DONE THE FOLLOWING. • PLACED YOUR AP NUMBER LABEL ON YOUR ANSWER SHEET WRITTEN AND GRIDDED YOUR AP NUMBER CORRECTLY ON YOUR ANSWER SHEET TAKEN THE AP EXAM LABEL FROM THE FRONT OF THIS BOOKLET AND PLACED IT ON YOUR ANSWER SHEET • •
B Section II: Free- Response Questions This is the free-response section of the 2013 AP exam. It includes cover material and other admi nistrative instructions to help familiarize students with the mechanics of the exam. (Note that future exams may differ in look from the following content.)
AP ® Microeconomics Exam 2013 SECTION II: Free Response DO NOT OPEN THIS BOOKLET UNTIL YOU ARE TOLD TO DO SO. At a Glance Total Time1 hour Number of Questions3 Percent of Total Score33.33% Writing InstrumentPen with black or dark blue ink Reading Period Time10 minutes. Use this time to read the questions and plan your answers. Writing Period Time50 minutes Question 1 Suggested Time25 minutes Percent of Section II Score50% Question 2 Suggested Time12.5 minutes Percent of Section II Score25% Question 3 Suggested Time12.5 minutes Percent of Section II Score25% Instructions The questions for Section II are printed in this booklet.You may use page 3 and the pages the questions are printed on to organize your answers and for scratch work ,but you must write your answers on the lined pages provided for each question. The proctor will announce the beginning and end of the reading period. You are advised to spend the 10- minute period reading all the questions and planning your answers. Do NOT begin writing on the lined pages until the proctor tells you to do so . Write clearly and legibly. Do not skip lines.Cross out any errors you make; crossed- out work will not be scored. Manage your time carefully. You may proceed freely from one question to the next. You may review your responses if you finish before the end of the exam is announced . Form I Form Code 4JBP4-S 34
GO ON TO THE NEXT PAGE. -3- MICROECONOMICS Section II Planning time — 10 minutes Writing time — 50 minutes Directions: You have 10 minutes to read all of the questions in this booklet, to sketch graphs, to make notes, and to plan your answers. You will then have 50 minutes to answer all three of the following questions. It is suggested that you spend approximately half your time on the first question and divide the remaining time equally between the next two questions . In answering the questions, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Use a pen with black or dark blue ink. Question 1 begins on page 4. Question 2 begins on page 10. Question 3 begins on page 14. THIS PAGE MAY BE USED FOR TAKING NOTES AND PLANNING YOUR ANSWERS. NOTES WRITTEN ON THIS PAGE WILL NOT BE SCORED. WRITE ALL YOUR RESPONSES ON THE LINED PAGES.
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -4- 1. Rice is produced in a perfectly competitive industry. Grand Farm is a typical firm in the rice industry earni ng a positive economic profit. (a) Using correct ly labeled side-by- side graphs for the rice industry and Grand Farm, show each of the foll owi ng in the sho rt run. (i) The industry price and quantity, labeled and (ii) Grand Farm’s demand curve and marginal revenue curve, labeled and (iii) Grand Farm’s quantity of output, labeled (iv) Grand Farm’s profit, shaded completely (b) In the long run, what ha ppens to each of the following? (i) The number of firms in th e industry. Explain. (ii) The equilibri um price; does it increase, decrease, or remain the same relative to ? (c) Suppose Lori ’s Quick Eats sells fried rice in a monopolistically competitive fast-food industr y. Lori’s Quick Eats is earning positive economic profits in the short run. Using a co rrectly labeled graph for this monopolistically competitive firm, s how each of the follow ing in the short run. (i) The demand and marginal revenue curves, labeled and (ii) The marginal cost and average total cost curves, labeled MC and ATC (iii) The profit-maximizing price and quantit y, labeled and (d) Draw a correctly labeled graph for Lori’s Quick Ea ts in long-run equilibrium showing the demand curve and the long-run average total cost curve. THIS PAGE MAY BE US ED FOR TAKING NOTES AND PLA NNING YOUR ANSWE RS. NOTES WRITTEN ON THIS PAGE WILL NOT BE SCORED. WRITE ALL YOUR RESP ONSES ON THE LINED PAGES.
GO ON TO THE NEXT PAGE. -5- ANSWER PAGE FOR QUESTION 1
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -6- Question 1 is reprinted fo r your convenience. 1. Rice is produced in a perfectly competitive industry. Grand Farm is a typical firm in the rice industry earni ng a positive economic profit. (a) Using correct ly labeled side-by- side graphs for the rice industry and Grand Farm, show each of the foll owi ng in the short run. (i) The industry price and quantity, labeled and (ii) Grand Farm’s demand curve and marginal revenue curve, labeled and (iii) Grand Farm’s quantity of output, labeled (iv) Grand Farm’s profit, shaded completely (b) In the long run, what ha ppens to each of the following? (i) The number of firms in th e industry. Explain. (ii) The equilibri um price; does it increase, decrease, or remain the same relative to ? (c) Suppose Lori ’s Quick Eats sells fried rice i n a monopolistically competitive fast-food industr y. Lori’s Quick Eats is earnin g positive economic profits in the short run. Using a co rrectly labeled graph for this monopolistically competitive firm, s how eac h of the follow ing in the short run. (i) The demand and marginal revenue curves, labeled and (ii) The marginal cost and average total cost curves, labeled MC and ATC (iii) The profit-maximizing price and quantit y, labeled and (d) Draw a correctly labeled graph for Lori’s Quick Ea ts in long-run equilibrium showing the demand curve and the long-run average total cost curve. THIS PAGE MAY BE US ED FOR TAKING NOTES AND PL ANNING YO UR ANSWE RS. NOTES WRITTEN ON THIS PAGE WILL NOT BE SCORED. WRITE ALL YOUR RESP ONSES ON THE LINED PAGES.
GO ON TO THE NEXT PAGE. -7- ADDITIONAL PAGE FOR ANSWERING QUESTION 1
GO ON TO THE NEXT PAGE. -8- ADDITIONAL PAGE FOR ANSWERING QUESTION 1
GO ON TO THE NEXT PAGE. -9- ADDITIONAL PAGE FOR ANSWERING QUESTION 1
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -10- 2. Attaburger and Beefsteak are the only tw o fast-food hamburger restaurants in a small town. Each firm can choose to set a high price o r a low price for a hamburge r meal. The payoff matrix below show s the daily profits for any comb ination of stra tegies the two restaurants can choose. The payoff for Attaburger is listed first; the payoff for Beefsteak is listed second. Assume both restaurants have complete information. (a) If Attaburger select s a high price, what strategy will B eefsteak select? Explain using the dollar values in the payoff matrix. (b) Does Beefsteak have a do minant strategy? Explain using the dolla r values in the payoff matr ix. (c) Assume that Attaburger and Beefst eak collude, both agreeing to ch oose high prices in order to maximize their joint pr ofit at $23. If su ch an agreement is not legally enforceable, does Atta burger have an incentive to break the agreem ent? Explain using specific values. (d) Instead of colluding, the firms si multaneously select their prices. In the Nash equilibrium, what are the daily profits for each of the following? (i) Attaburger (ii) Beefsteak THIS PAGE MAY BE US ED FOR TAKING NOTES AND PLA NNING YOUR ANSWE RS. NOTES WRITTEN ON THIS PAGE WILL NOT BE SCORED. WRITE ALL YOUR RESP ONSES ON THE LINED PAGES.
GO ON TO THE NEXT PAGE. -11- ANSWER PAGE FOR QUESTION 2
GO ON TO THE NEXT PAGE. -12- ADDITIONAL PAGE FOR ANSWERING QUESTION 2
GO ON TO THE NEXT PAGE. -13- ADDITIONAL PAGE FOR ANSWERING QUESTION 2
Unauthorized copying or reuse of any part of this page is illegal. GO ON TO THE NEXT PAGE. -14- 3. Umbrellas are produced by a perfectly competitive, constant-cost industry. In the short run, the equilibrium price is $7 per umbrella and the typical firm is operating with a loss. The typical firm has the total cost function shown in the table below. Daily Output Total Cost per Day 0 $10 1 $13 2 $18 3 $24 4 $32 5 $45 6 $60 (a) Using a correctly labeled graph, draw the de mand curve for a typical firm in this industry. (b) Using the data above, determine each of the following for the typical firm. (i) Total fixed cost (ii) The loss-minimizing level of output (iii) The value of losses at the output level you found in part (b)(ii) (c) Explain why the typical firm chooses to ope rate despite incurring a loss in the short run. (d) If the total cost per day remains unchanged in the lo ng run, what is the long-run equilibrium price for umbrellas? THIS PAGE MAY BE US ED FOR TAKING NOTES AND PLANNING YOUR ANSWERS. NOTES WRITTEN ON THIS PAGE WILL NOT BE SCORED. WRITE ALL YOUR RESPONSES ON THE LINED PAGES.
GO ON TO THE NEXT PAGE. -15- ANSWER PAGE FOR QUESTION 3
GO ON TO THE NEXT PAGE. -16- ADDITIONAL PAGE FOR ANSWERING QUESTION 3
GO ON TO THE NEXT PAGE. -17- ADDITIONAL PAGE FOR ANSWERING QUESTION 3
-18- STOP END OF EXAM THE FOLLOWING INST RUCTIONS APPLY TO THE COVERS OF THE SECTION II BOOKLET. • MAKE SURE YOU HAVE COMPLETED THE IDENTIFICATION INFORMATION AS REQUESTED ON THE FRONT AND BACK COVERS OF THE SECTION II BOOKLET. CHECK TO SEE THAT YOUR AP NUMBER LABEL APPEARS IN THE BOX(ES) ON THE COVER(S). MAKE SURE YOU HAVE USED THE SAME SET OF AP NUMBER LABELS ON ALL AP EXAMS YOU HAVE TAKEN THIS YEAR. • •
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