Archive for the 'Game Theory' Category

May 21 2007

2007 AP Free Response Questions- a few surprises!

The College Board released the Free Response Questions given to AP Econ students around the world on May 17 over the weekend. The links below should lead to the PDF files, but a user name for AP Central may be required to view them.

AP Free Response Questions for International Students:AP Economics

And for American Students:

Upon first glance, I have to say both sets of questions were a bit harder than those from past years. First off, the long FRQs (number 1) in Macroeconomics tested a topic from a relatively minor section of the syllabus: Trade. Almost every past long FRQ from Macro started with a scenario where the economy was experiencing instability (recession or inflation), followed by a scenario where Fiscal or Monetary policy (or both) were used to correct the instability. This year’s question on both the international and the American exams asked nothing about correcting instability, rather focused on relative price levels in two countries, and how this would affect the balance of trade, output abroad, and self-correction from a recession at home (i.e. no government involvement). The last part of the international question 1 was tricky:

(d) Although recovering, Australia remains in recession and its government takes no action. Indicate whether each of the following curves will shift to the left, shift to the right, or remain unchanged in the long run in Australia.
(i) Aggregate supply
(ii) Aggregate demand

I think what the exam writers were looking for here is an explanation that Aggregate Supply will shift outward do to the flexibility of wages in the long-run. As the recession continues, high levels of unemployment will mean workers are willing to accept lower wages, which means lower resource costs for firms, and an outward shift in AS. This question breaks from the norm on AP FRQs, which as stated above usually involve the use of some corrective measures taken by government or a central bank to restore stability.

Questions 2 and 3 on the international Macro test covered more traditional topics, specifically: loanable funds market, real interest rate and investment (#2) and relative interest rates between two countries, flow of financial capital, exchange rates and net exports (#3). I am confident most of my students were prepared for these questions.

The Microeconomics FRQs were no less surprising in the topics covered and their difficultly. The long FRQ (number 1) covered monopolistic competition; while past long FRQs have covered this, a far more common focus has been pure competition or pure monopoly. In reality, a question on monopolistic competition seems appropriate given that it is a more realistic market condition; “pure” anything really only exists in theory, so this is no real shocker.

Question 2 on the international exam dealt with Game Theory and oligopoly. Fortunately, I has suspected this would appear on the exam and had focused much of my review on payoff matrixes, including an appendix in my Micro review guide dedicated to this topic. My students should have nailed this one.

Question 3 in Micro caught everyone off guard, as it was a True/False question. I hadn’t seen one of these on and AP exam since way back, somewhere in the mid-90’s. Granted, the question did ask for an explanation of why each was true or false. Still, one of them seemed particularly confusing for my students, many of whom have come to debate the correct answer with me:

(c) If a firm shuts down in the short run, its profits will equal zero. True/False. Explain

The logical answer seems to be TRUE, obviously a firm would not be shutting down if it were earning any profits (normal or economic). But what my students were unsure about was whether the AP expected an answer of FALSE, followed by an explanation such as: “A firm will shut down when it experiences a loss greater than its fixed costs, in which case its profits will be negative”. In this case, it’s profits will NOT equal zero, rather they will be negative. Anyone have a clarification on this one for us? What would YOU have answered?

Overall I thought the 2007 Free Response Questions were a bit more challenging than those from past years. Mostly this is because of the absence of any questions involving the use of Fiscal or Monetary Policies, which in the past have been quite prominent themes. One clear message I have taken away from this year’s exam is that Trade, Exchange Rates, Relative interest rates, and net exports seem to be taking center stage for the AP in the Macro area. I would not be surprised if in the next couple of years, these international topics become more of a focus in the Macro course. In the latest edition of the Acorn book (the official AP publication outlining the Econ courses) International Economics only consists of 10-15% of the syllabus. Don’t be surprised if in the next edition of this publication International Economics makes up a much bigger chunk. In my opinion (writing from an international school in China), this is a very good step forward for the Advanced Placement Economics course!

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