AP MICROECONOMICS
Scoring Guidelines
Question 1: Long
1. On the island of Gratin, potatoes are produced in a perfectly competitive constant cost industry. The market for
potatoes is currently in long-run equilibrium at the market price of $5 per sack.
(a) Draw correctly labeled side-by-side graphs for the potato market and for farmer Lamo and show each of the
following.
(i) The market equilibrium quantity and price, labeled QM and $5, respectively
(ii) The quantity produced and the price for farmer Lamo, labeled QL and $5, respectively
(b) Believing that the incomes of potato farmers are unfairly low, the government of Gratin imposes a binding price
floor at $7 per sack. The government will purchase any surpluses of potatoes. On your graph in part (a), show each
of the following.
(i) The market quantity of potatoes that would be supplied at the price floor, labeled QF
(ii) The profit farmer Lamo earns, shaded completely
(c) If the absolute value of the price elasticity of demand is 0.92, would consumer spending on potatoes increase,
decrease, or stay the same as a result of the price floor? Explain.
(d) How would the price floor affect the demand for labor by potato farmers?
(e) Potatoes, corn, and rice are all produced on the island of Gratin in perfectly competitive markets.
(i) Assume corn is a substitute in production (an alternate output) for potatoes. How would setting the price floor
on potatoes affect the equilibrium price and quantity of corn?
(ii) As a result of an increase in the price of rice, the demand for potatoes increased. Are rice and potatoes
substitutes or complements in consumption?
AP Microeconomics Course and Exam Description | SG 1
Scoring Guidelines for Question 1: Long 10 points
Learning Objectives: MKT-3.B MKT-3.D MKT-3.E POL-4.A PRD-3.A PRD-4.B
(a) Draw a correctly labeled graph of the potato market that shows the market equilibrium quantity and price 1 point
labeled QM and $5, respectively. 4.A
Task type: Create graphs or visual representations
Draw a correctly labeled graph for farmer Lamo next to the graph of the potato market that shows a 1 point
horizontal demand curve for Lamo coming from the market equilibrium price of $5. 4.A
Task type: Create graphs or visual representations
Show the profit-maximizing quantity QL, where P = MC. 1 point
4.B
Task type: Create graphs or visual representations
AP Microeconomics Course and Exam Description | SG 2
Show the ATC curve tangent to Lamo’s demand curve at QL. 1 point
Task type: Create graphs or visual representations 4.B
Total for part (a) 4 points
(b) (i) On the graph from part (a), show the market quantity of potatoes that would be supplied at the 1 point
price floor, labeled QF. 4.C
Task type: Create graphs or visual representations
(ii) On the graph from part (a), show the profit farmer Lamo earns with the price floor, shaded completely. 1 point
Task type: Create graphs or visual representations 4.C
Total for part (b) 2 points
(c) State that consumer spending on potatoes will increase and explain that because the demand for 1 point
potatoes is inelastic, the price increase will result in an increase in total spending. (It is also acceptable 3.C
to explain that because demand is inelastic, the percentage increase in price outweighs the percentage
decrease in the quantity demanded of potatoes, resulting in an increase in total spending on potatoes.)
Task type: Explain
AP Microeconomics Course and Exam Description | SG 3
(d) State that the demand for labor will increase and/or the demand curve will shift to the right. 1 point
Task type: Make an assertion 3.B
(e) (i) State that the equilibrium price of corn will increase and the equilibrium quantity of corn will decrease. 1 point
Task type: Make an assertion 3.B
(ii) State that potatoes and rice are substitutes in consumption. 1 point
Task type: Make an assertion 2.A
Total for part (e) 2 points
Total for question 1 10 points
| SG 4
Question 2: Short
2. Two discount stores, Discount Delight and Bargain Floor, sell a popular brand of athletic shoes. They are considering
including these shoes in their upcoming sale. The relevant payoff matrix appears below, with the first entry in each cell
indicating Discount Delight’s profit from shoe sales and the second entry in each cell indicating Bargain Floor’s profit.
The two firms know all the information in the payoff matrix and do not cooperate.
Bargain Floor
Includes Does Not Include
Includes $150, $180 $200, $100
Discount
Delight Does Not
$100, $250 $240, $220
Include
(a) If Discount Delight does not include the shoes in its sale but Bargain Floor includes them, what will Bargain
Floor’s profit be?
(b) Does either player have a dominant strategy? If so, identify the player and the strategy.
(c) Using numbers from the table, explain why both stores choosing not to include the shoes in their respective sales
does not correspond to a Nash equilibrium.
(d) Identify the Nash equilibrium strategy for each store.
(e) If the two stores could cooperate in choosing their strategies, would the outcome change? Explain.
| SG 5
Scoring Guidelines for Question 2: Short 5 points
Learning Objectives: PRD-3.C
(a) State that Bargain Floor’s profit will be $250. 1 point
Task type: Perform numerical analysis 1.C
(b) State yes and identify that including the shoes in its sale is the dominant strategy for Bargain Floor. 1 point
Task type: Perform numerical analysis 1.C
(c) Explain that it is not a Nash equilibrium because Bargain Floor has an incentive to move to including the
1 point
shoes in its sale, earning $30 more ($250>$220).
2.C
Task type: Explain
(d) Identify the Nash equilibrium strategy for each store as choosing to include the shoes in the sale. 1 point
Task type: Perform numerical analysis 2.C
(e) State yes and explain that by both agreeing to not include the shoes in their sales, they would both 1 point
increase their profits. 3.C
Task type: Explain
Total for question 2 5 points
| SG 6
