UNIT
2 Microeconomics
SHORT FREE-RESPONSE
SAMPLE QUESTIONS
Answer
Key
Sample Short Free-Response Questions
1. Evaluate this statement: “An increase in demand increases price. The higher price increases supply.
The higher supply decreases price, and price settles down to the original level.”
The statement is a mixture of accurate economics resulting in nonsense. The first sentence refers to
an increase in demand or to a shift in the demand curve to the right. The second sentence says that
the higher price will increase the quantity supplied (a movement along the supply curve). The third
sentence refers to an increase in supply or a rightward shift in the supply curve.
2. If foreigners demand more American wheat, what will happen to the price and quantity supplied
in the momentary situation? In the short run? In the long run? Why?
In the momentary situation, price would rise and quantity supplied would not change. In the short
run, more wheat would come out of storage, and price would fall below momentary equilibrium
but above the original equilibrium. In the long run, farmers would plant more wheat, and price
would fall more. In a constant-cost industry, price would return to its original level but quantity
would increase. In an increasing-cost industry, price would not return to its original level but be
higher.
3. I sit in the back row of the barbers’ union where they are discussing a proposal to raise the price of
haircuts from $18 to $20. The argument gets nowhere, and someone suggests asking me, as an
economist, whether it is a good idea or not. I reply, “Many studies have shown that the demand for
haircuts is elastic.” What are they to make of this? Why? Be as brief as possible in making the
major point that the barbers ought to see in this situation.
If the demand for haircuts is elastic, total revenue would fall if the price were raised.
114
Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.
UNIT
2 Microeconomics
SHORT FREE-RESPONSE
SAMPLE QUESTIONS
Answer
Key
4. True, false or uncertain, and explain why? “Other things being the same, the surplus of workers
associated with a price floor will be greater the greater the elasticity of both supply and demand.”
Discuss this statement. Use graphs to illustrate your explanation.
The more elastic the supply and demand curves, the greater the surplus.
Inelastic Demand
Elastic Demand
S
PRICE
PRICE
S
D
D
Surplus
Surplus
QUANTITY
QUANTITY
PRICE
S
$5.00
D
40,000
QUANTITY OF TICKETS
*5. An arena holds a maximum of 40,000 people, as indicated in the graph above. Each year the circus holds eight performances, all of which are sold out.
(A) Analyze the effect on each of the following of the addition of a fantastic new death-defying
trapeze act that increases the demand for tickets.
(i) The price of tickets
(ii) The quantity of tickets sold
The trapeze act will cause an increase in demand (shift right in the demand curve) increasing
the price, but the quantity will remain the same because the quantity is fixed at 40,000 seats.
Grading Rubric: Part (A) = 2 points
Price increases as a result of the demand increases (1 point)
Quantity remains the same (1 point)
* Actual free-response question from a past AP test. Reprinted by permission of the College Entrance Examination Board, the copyright owner. For limited use by NCEE.
Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.
115
UNIT
2 Microeconomics
SHORT FREE-RESPONSE
SAMPLE QUESTIONS
Answer
Key
(B) The city of Toledo institutes an effective price ceiling on tickets. Explain where the price ceiling would be set. Explain the impact of the ceiling on each of the following:
(i) The quantity of tickets demanded
(ii) The quantity of tickets supplied
The price ceiling must be set below the equilibrium price with the new trapeze act (1 point).
The quantity demanded will increase (1/2 point), however the quantity supplied will remain
the same (fixed at 40,000) (1/2 point).
Grading Rubric: Part (B) = 2 points
Setting the price ceiling below the equilibrium price (1 point)
Quantity demand increases (1/2 point)
Quantity supplied unchanged (1/2 point)
(C) Will everyone who attends the circus pay the ceiling price set by the city of Toledo? Why or
why not?
No, a secondary market or reselling of tickets or scalping of tickets will have some circus goers
paying more than the ceiling price (1 point).
Grading Rubric: Part (C) = 1 point (some version of the above)
(Note: Radio give-aways, coupons and employees do not change with the existence of a price
ceiling; therefore that type of answer is incorrect.)
6. A newspaper headline says, “The Coldest Winter in 20 Years Brings Record Prices for Heating Oil.”
(A) Using a graph of home heating oil, show and explain how price changed.
The record cold increases the demand for heating oil to run heaters, so the demand increases,
raising the price and quantity sold.
PRICE
S
P1
P
D1
D
Q Q1
QUANTITY
(B) What other factors could cause the price of heating oil to increase?
Any factor that increased demand could increase price and quantity.
Any factor that decreased supply could increase price and decrease quantity.
116
Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.
UNIT
SHORT FREE-RESPONSE
2 Microeconomics
SAMPLE QUESTIONS
Answer
Key
7. In a recent year, the price of wheat fell. For each of the following, draw a supply and demand
graph showing a decrease in prices with the stated impact on quantity.
(A) The quantity of wheat decreasing
PRICE
S
D
D1
QUANTITY
(B) The quantity of wheat increasing
S
PRICE
S1
D
QUANTITY
(C) The quantity of wheat staying the same
D
PRICE
PRICE
S1
OR
D1
Q
QUANTITY
S
PRICE
S
S
OR
D
D
D1
S1
Q
QUANTITY
Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.
Q
QUANTITY
117
UNIT
2 Microeconomics
SHORT FREE-RESPONSE
SAMPLE QUESTIONS
Answer
Key
8. The market for many commodities is seasonal in nature. Their sales (equilibrium quantity)
increase dramatically during certain times of the year. Christmas cards and fresh strawberries, at
least in the North, are two examples. Christmas-card sales increase during the last three months of
the year, and the sales of fresh strawberries in the North increase during the summer months. But
the (equilibrium) price movement of these two commodities is quite different during their peak
sales season: Christmas cards increase in price during the last three months of the year, whereas
strawberries decrease in price during the summer.
(A) Show on the graph below how there can be an increase in the equilibrium quantity and an
increase in the equilibrium price of Christmas cards during the last three months of the year,
and briefly explain what has happened.
Christmas Card Market
PRICE
S
P1
P
D1
D
Q Q1
QUANTITY
With other things constant, there is an increase in the demand for Christmas cards in the last
three months of the year. This causes a rightward shift of demand and causes the price and
quantity sold to increase.
(B) Change the graph for fresh strawberries in the North to show how there can be an increase in
the equilibrium quantity and a decrease in the equilibrium price of strawberries in the summer, and briefly explain what has happened.
Strawberry Market in the North
S
PRICE
S1
P
P1
D
Q Q1
QUANTITY
Other things constant, there is an increase in the supply of fresh strawberries in the northern
areas of the United States in the warmer months when the berries are harvested in the northern
areas. This causes a rightward shift in the supply curve and causes the price to fall and the
quantity sold to increase.
118
Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.