Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition...
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![Page 1: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/1.jpg)
Top 10 Most Common Errors
AP Economics2009
![Page 2: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/2.jpg)
Overview of Trouble Spots10. Monopolistic Competition
and Economies of Scale
9. A Tax Reduces Allocative Efficiency
8. Capital Flight Decreases SLF and Increases r.
7. A Lump-Sum Tax Doesn’t Effect Q* because it Doesn’t Effect MC
6. Elasticity Calculation and Interpretation
5. Money/Deposit Multiplier
4. An Increase in the Money Supply Results (via #3) in a Decrease in Real Wages
3. Real Wages Fall due to an Increase in the Price Level
2. Link between Growth and Capital Formation
1. SRPC Shifts due to Changes in Inflationary Expectations
![Page 3: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/3.jpg)
10. Overseas Micro 1 (e)
Question: In the long run, will the [monopolistically competitive] company be operating in a region where economies of scale exist? Explain.
Answer: Yes (52 percent answered correctly), because the firm produces a quantity of output on the downward sloping portion of its long-run ATC.
(27 percent answered correctly)
![Page 4: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/4.jpg)
Monopolistic Competition
$/unit
Marginal Revenue
Demand
Marginal Cost
P
Q Quantity
Long-Run Average Cost
![Page 5: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/5.jpg)
Monopolistic Competition
$/unit
Marginal Revenue
Demand
Marginal Cost
P
Q Quantity
Long-Run Average Cost
Economies of ScaleEconomies of Scale
![Page 6: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/6.jpg)
9. Micro 2 (d)
Question: Assuming no externalities, how does the tax affect allocative efficiency? Explain.
Pric
e ($
)
S
D
90
S + Tax
60
$2
$4
$8
$6
$5
![Page 7: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/7.jpg)
Answer: Due to the tax, the outcome is no longer allocatively efficient. The tax creates deadweight loss. OR The total surplus decreases.
(22% answered correctly)
Pric
e ($
)
S
D
90
S + Tax
60
$2
$4
$8
$6
$5
Deadweight Loss
![Page 8: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/8.jpg)
8. Macro 2 (b)
Question: Using a correctly labeled graph of the loanable funds market in Tara, show the impact of this decision by investors [to move their funds out of the country of Tara] on the real interest rate in Tara.
![Page 9: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/9.jpg)
The Graph
Real interest rate
Loanable funds
DLF
SLF
r
Q
40% Correct
![Page 10: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/10.jpg)
The Shift and Change
Real interest rate
SLF’
Loanable funds
DLF
SLF
Q’
r'
r
Q
22% Correct
![Page 11: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/11.jpg)
7. Micro 1 (b)Question: Assume that the government grants
CableNow a lump-sum subsidy of $1 million. Will this policy change CableNow’s profit maximizing quantity of cable services? Explain.
Answer: No (46% answered correctly—note that guessing would yield 50% correct), because the lump-sum tax will not affect marginal cost (or marginal revenue, the two determinants of Q*).
18% answered correctly
![Page 12: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/12.jpg)
6. Micro 2 (c)
Question: Is the demand price elastic, inelastic, or unit elastic between the prices of $5 and $6? Explain.
![Page 13: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/13.jpg)
The Graph Provided
Pric
e ($
)S
Quantity
D
90
S + Tax
60
$2
$4
$8
$6
$5
![Page 14: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/14.jpg)
Answer: The demand is price elastic because elasticity is [(60-90)/75]/[(6-5)/5.5] = -2.2 which is less than -1
OR
because total revenue decreased from $5 x 90 = 450 to $6 x 60 = $360 when price increased from $5 to $6.(15% answered correctly)
![Page 15: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/15.jpg)
5. Macro 3 (a) ii
Question: Assume that the reserve requirement is 20 percent and banks hold no excess reserves. Assume that Kim deposits $100 of cash from her pocket into her checking account. Calculate the maximum change in demand deposits in the banking system.
Answer: (The money multiplier of) 5 x $100 = $500.
(14% answered correctly.)
![Page 16: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/16.jpg)
3. and 4. Macro 3 (c)
Question: Given the increase in the money supply in part (b), what happens to real wages in the short run?
Answer: Real wages fall (20% answered correctly) because the increase in the money supply raises the price level (or inflation).
(15% answered correctly)
![Page 17: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/17.jpg)
2. Macro 2 (c)
Question: Given your answer in part (b) [that interest rates increase], what will happen to Tara’s rate of economic growth? Explain.
Answer: The growth rate will fall (61% correct) because investment spending decreases, and as a result, capital formation will decrease.
9% answered correctly
![Page 18: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/18.jpg)
1. Macro 1 (f) i
Question: Assume the Federal Reserve action [to reduce inflation] is successful. What will happen to each of the following as the economy approaches a new long-run equilibrium?
(i) The short-run Phillips curve. Explain.
(ii) The natural rate of unemployment.
![Page 19: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/19.jpg)
The Phillips Curve
InflationLong-Run Phillips Curve
Natural Rate
SRPCw/High Expected Inflation
Unemployment
SRPCw/Low Expected Inflation
![Page 20: Top 10 Most Common Errors AP Economics 2009. Overview of Trouble Spots 10. Monopolistic Competition and Economies of Scale 9. A Tax Reduces Allocative.](https://reader035.fdocuments.net/reader035/viewer/2022072014/56649e895503460f94b8d8e2/html5/thumbnails/20.jpg)
Answer: The SRPC will shift to the left (28% answered correctly) because the Fed policy will lower inflationary expectations.
(2% answered correctly)
The natural rate of unemployment will not change. (24% answered correctly)