COMMON MISTAKES ON THE AP MICRO EXAM - avon-schools.org

101 Pages·2010·1.06 MB·English

COMMON MISTAKES ON
THE AP MICRO EXAM
A change in Demand versus a change in
the Quantity Demanded
Change in Demand
Change in Quantity
√ Moves the curve
Demanded
•Income
√ Moves Along the SAME
•Future Expectations curve
•# of Buyers
• Caused only by Price
•Consumer Information change.
•Taste and Preference
•Substitues and Complements
Consumer and Producer Surplus
√ The value in excess of the purchase price
√ The income the firm gets in excess of its marginal costs
P
S
CS
P
1
PS
D
Q Q
e
Price Floor and Price Ceiling
P
S
Surplus
P
f
P
1
P
c Shortage
D
Q
Q
e
Elasticity
E % change in Q
PRICE
d = d
% change in P
CROSS E = % Δ Quantity of X
c
%Δ Price of Y
E = % Δ Quantity
INCOME
i
%Δ Income
Dead Weight Loss When the
Price is Below P*
• Value to the Consumer:
P
• 0AEQ’
Supply
• Consumers Pay Producers:
A
• OP’FQ’
E
• The Variable Cost to Producers:
P*
C
• OBFQ’
P’
• Consumer Surplus:
F
• P’AEF
B
Demand • Producer Surplus:
• BP’F
0 Q’ Q*
Q/t
• DWL
• FEC
TAX INCIDENCE AND
EFFICIENCY LOSS
Tax Revenues
Efficiency Loss of a Tax
Role of Elasticities
Qualifications
• Redistributive Goals
• Reducing Negative
Externalities
Perfectly Inelastic Demand
P
S
2
P
2 S
1
P
1
D
Q =Q
1 2 Q/t
Perfectly Elastic
Demand
P
S
2
S
1
P =P
1 2
D
Q Q
2 1 Q/t
Inelastic
P
Demand
(at
S
2
moderate prices)
S
1
P
2
P
1
D
Q Q
2 1
Q/t