Teaching the
Toughest Graphs
David A. Anderson
Centre College
Chief Reader
Favorite Ways to
Learn Economics
Third Edition
Agenda
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Confidential and Proprietary –
Not for Distribution
Tough Graphs from the
2012 AP Microeconomics Exam
Question: If Steverail raised its price above Pm
identified in part (a)(i), would total revenue
increase, decrease, or not change? Explain.
Price
Elastic Range
Inelastic range
Demand
0
Quantity
Marginal
Revenue
Price
Elastic Range
Inelastic range
Demand
0
Price
Quantity
Marginal
Revenue
Total
Revenue
0
Quantity
Elastic:
TR =
P
×
Q
Unit Elastic:
TR =
P
×
Q
P
×
Q
(no change)
Inelastic:
TR =
Price
Price
Price
Elastic
Inelastic
Unit Elastic
P2
P1
D
P2
P1
P2
P1
D
Q2
0
P
Q1 Quantity
TR
0
P
Q2
Q1 Quantity
TR same
D
0
Q2Q1
P
Quantity
TR
Question: Suppose that Loriland imposes a per-unit tariff on sugar
imports and the new domestic price including the tariff is $4.
Calculate the total tariff revenue collected by the government. You
must show your work.
World Price + Tariff
2
4
Imports
5
Domestic Price
10
Calculate the domestic consumer surplus for Loriland. You must show
your work.
Consumer Surplus without the Tariff
Practice with Immediate Feedback
• Personal White Boards
Practice with Immediate Feedback
• Personal White Boards
See What They’re Drawing
• Sidewalk Chalk
Posters
Other Toughies
Price ceilings and floors
Supply
Price
Price
Ceiling
PC
Demand
0
QM
QC
Marginal
Revenue
Quantity
Supply
Price
Price
Ceiling
PC
Demand
0
QM
QC
Marginal
Revenue
Quantity
The ECON CHEER
o Supply
o Demand
o Equilibrium
o Elastic
o Inelastic
o Substitutes
o Complements
o Production Possibilities
o The Floors Up High
o The Ceilings Down Low
o And that’s the way the Econ Cheer Goes!
Deadweight Loss
Socially Efficient Quantity
Price
MSC
25
20
15
10
5
MSB
0
10
20
Qs
30
Quantity
Deadweight Loss of Overproduction
Price
MSC
25
Deadweight
loss
20
15
10
5
MSB
0
10
20
30
Qs
Qp
Quantity
Deadweight Loss of Overproduction
Price
MSC
25
Deadweight
loss
Marginal External Cost
20
SUPPLY = MPC
15
10
5
DEMAND = MSB = MPC
0
10
20
30
Qs
Qp
Quantity
The “Arrow” Points to the
Socially Optimal Quantity
Price
SUPPLY = MSC
25
20
15
10
5
DEMAND = MSB
0
10
20
30
Qs
Qp
Quantity
Deadweight Loss of
Underproduction
Supply + Tax
Price
Supply = MSC
25
20
15
10
5
Demand = MSB
0
10
20
Qp
Qs
30
Quantity
Deadweight Loss of
Underproduction
Price
MSC
25
20
15
10
5
MSB
0
10
Qp
20
Qs
30
Quantity
Marginal Factor Cost
A Firm Hiring in a Competitive Labor Market
Wage
10
Labor Supply
Quantity of Labor
Marginal Factor Cost
A Firm Hiring in a Competitive Labor Market
Wage
10
Labor Supply
4
5
Quantity of Labor
How much does it cost to hire another worker?
Marginal Factor Cost
A Firm Hiring in a Competitive Labor Market
Wage
10
Labor Supply
$10
4
5
Quantity of Labor
How much does it cost to hire another worker?
$10
Marginal Factor Cost
A Firm Hiring in a Competitive Labor Market
Wage
10
Labor Supply
$40
4
5
Quantity of Labor
How much does it cost to hire another worker?
Marginal Factor Cost
A Firm Hiring in a Competitive Labor Market
Wage
10
Labor Supply
$50
4
5
Quantity of Labor
How much does it cost to hire another worker?
$50 - $40 = $10
Marginal Factor Cost
A Firm Hiring in a Monopsony Labor Market
Wage
Labor Supply
11
10
4
5
Quantity of Labor
How much does it cost to hire another worker?
.
Marginal Factor Cost
A Firm Hiring in a Monopsony Labor Market
Wage
Labor Supply
11
10
4
5
Quantity of Labor
How much does it cost to hire another worker?
Total factor cost went from $40 to $55, so $15.
Marginal Factor Cost
A Firm Hiring in a Monopsony Labor Market
Wage
Labor Supply
11
10
4
5
Quantity of Labor
How much does it cost to hire another worker?
$11 for the 5th worker and $4 in wage increases for the first four. $11 + $4 = $15
Marginal Factor Cost
A Firm Hiring in a Monpsony Labor Market
Wage
Marginal Factor Cost
15
Labor Supply
11
5
Quantity of Labor
Monopsony
Wage
Marginal Factor Cost
Supply of Labor
Marginal Revenue
Product
10
100
Quantity of Labor
Monopsony
Wage
Marginal Factor Cost
Supply of Labor
12.5
10
Marginal Revenue
Product
100 150
Quantity of Labor
Wage
Marginal Factor Cost
Supply of Labor
12.5
10
Marginal Revenue
Product
100 150
Quantity of Labor
Teaching Each Other
• Half the class leaves the room
• You teach the remaining half a tough graph,
such as the graph for Natural Monopoly,
Monopsony, or Public Goods
• The students who left come back in
• The students who stayed teach the graph to
the students who left
• Check comprehension with some questions
for those who left the room
• Prizes?
Blind curves
• Pair up students
• Arrange so that one student in each pair is facing
the chalkboard
• Place a divider between the students in each pair
• Draw a new graph on the board
• Have the students facing the board describe the
curves to their partners without naming the
curves.
• Examine the results
• Have the students switch places and repeat the
activity
Graph jeapardy
Marginal Cost
$/unit
Long-Run
Average Cost
P
Demand
Q
Quantity
Marginal
Revenue
Inflation
Unemployment
Inflation
Unemployment
Neat Applications
2-part Tariff
Price
Ticket
Price
P
Demand
0
Q
Quantity
2-part Tariff
Price
Admission Fee
Ticket
Revenue
Ticket
Price
P
Demand
0
Q
Quantity
2-part Tariff
Price
Admission Fee
Demand
P
0
Ticket
Price
QC
Quantity