AP Microeconomics

3.3 AP Free Response Assignment

The following is a free response question released by the College Board from a previous AP exam to be
used as practice for future exams. Answer each part of the question in the document below, and then
turn your completed response in to your instructor for grading. This question will be graded out of 6
points.

1. The graph below illustrates the market for calculators. S denotes the current supply curve, and D
denotes the demand curve.

(a) Calculate the producer surplus before the tax.

The producer surplus before the tax is ½*$3*90=$135.

(b) Now assume a per-unit tax of $2 is imposed whose impact is shown in the graph above.

(i) Calculate the amount of tax revenue.

$2*60=$120

(ii) What is the after-tax price that the sellers now keep?
$4.

(iii) Calculate the producer surplus after the tax.

½*$2*60=$60

(c) Is the demand price elastic, inelastic, or unit elastic between the prices of $5 and $6 ? Explain.
The demand price is elastic.
Price elasticity of demand = ((Q2-Q1)/((Q1+Q2)/2))/((P2-P1)/((P1+P2)/2))
Q1=90, Q2=60, P1=$5, P2=$6
So price elasticity of demand = ((60-90)/((60+90)/2))/((6-5)/((5+6)/2))
=((-30)/(75))/((1)/(7.5)=-3

(d) Assuming no externalities, how does the tax affect allocative efficiency? Explain.
The tax makes the market no longer allocatively efficient because the tax creates a deadweight loss.