Wednesday, November 10th, 2010

Dear AP students,

You have a test tomorrow.  Below are the answers to the study review guide, which I gave out in class today.  Best of luck in your studying endeavors!

1.

a. Demand increases, price and quantity increase

b. Demand decreases, price and quantity decrease

c. Supply decreases, price increases, quantity decreases

d. Demand increases, price and quantity increase

e. Demand decreases, price and quantity decrease

f. Supply increases, price decreases, quantity increases

g. Demand increases, price and quantity increase

h. Demand increases, price and quantity increase

2. Price is unknown (ambiguous or indeterminate), quantity increases

3. Price increases, quantity increases

4. Quantity increases, price is unknown (ambiguous or indeterminate)

5. Quantity decreases, price is unknown (ambiguous or indeterminate)

6. Tax on sellers, price buyers pay increases, price sellers receive decreases, quantity falls, tax revenue = (tax)(quantity)

7. Decreases prices, causes a shortage, is inefficient (not in equilibrium)

8. Effective: above equilibrium price; ineffective: below equilibrium price. 

9.

a. $8, 8000 units

b. $3

c. $1

d. $2

e. $9

f. $6

g. Quantity decreased

h. Total revenue before the tax = ($8)(8000) = $64,000

i. Tax revenue after the tax = ($6)(6000) = $36,000

j. Total revenue after the tax = ($3)(6000) = $18,000

10. Creates a shortage of 4000 bikes; yes

11. Creates a surplus of 4000 bikes; yes

12. To help buyers by decreasing the price

13. To help sellers by increasing the price.

14. Minimum wage = price floor, set above the equilibrium price, helps some workers, hurts some (creates a surplus of labor, or unemployment)

15. Make sure that the binding price floor is above the equilibrium price.  The new QS represents workers seeking jobs.  The new QD represents employers seeking workers.  The wage is driven up.  The level of unemployment increases (because there is a surplus of labor at the higher wage).

16.

a. True

b. False

c. False

d. False

e. True

17.

a. False

b. True

c. False

d. False

e. False

18. Law of supply and demand: price adjusts to bring quantity supplied and quantity demanded into balance (equilibrium).

19. Many buyers and many sellers, similar/identical products, negligible/insignificant impact on price.

20.

a. P1

b. Q1

c. P3

d. P2

e. Area C + E

f. Area B + D

g. Demand shifts left.

h. Supply shifts left.

21. Both buyers and sellers.

22. Price buyers pay increases, price sellers receive decreases, quantity decreases

23. Number of buyers, tastes, expectations, income, prices of related goods

24. Changing price

25. Number of sellers, expectations, advances in technology, change in input prices

26. Who actually pays the tax (which curve shifts)

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