Economics Micro & Macro (CliffsAP)

B.The tax on Wisconsin cheese will affect the Wisconsin cheese market in California by shifting the supply

curve in. This is because the marginal cost of producing Wisconsin cheese for Californians has gone up. At any

given price producers are willing to supply less cheese because of the tax. The equilibrium price of Wisconsin

cheese in California will increase and the equilibrium quantity will decrease. The following graph illustrates this.

C.The demand for Wisconsin cheese is price elastic; a small increase in price will cause a large decrease in the

quantity demanded. Therefore the amount of money Californians spend on Wisconsin cheese will decrease.

3. A.
   (i)The market price of pistachios will remain the same, but since production of pistachios is cheaper for Jack,
   he would earn economic profit. Jack has a production advantage because the cost of production is heavily
   dependent on the number of pistachio pickers. If Jack can decrease his number of pistachio pickers, then
   he can drastically decrease the cost of production.
   (ii)Since Jack owns a small farm and a pistachio tree takes 5-10 years to produce pistachios, the supply of
   pistachios would not change in the short run. The production per worker has increased because of the
   new tool. Jack will benefit if he plants pistachio trees for the long run.

Q 2 Q 1 Quantity

P 1

P 2

Price

S 2

S 1

D

Q 1 Q 2 Quantity

P 1

P 2

Price

S

D 1

D 2

Part IV: AP Macroeconomics & Microeconomics Tests