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

Q

PS1

S2

D

Qe Q2

Pe

P2

- Axes labeled

- S and D labeled

- S shift labeled

- Equilibrium labeled

- Q change labeled

- P change labeled

- Directional arrows used

Mistakes/Suggestions

• Mislabeled or unlabeled graphs• Missing or unlabeled P and Q changes• Side-by-side graphs drawn as anything but side-

by-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