#AP Microeconomics: Supply and Demand - Your Ultimate Review 🚀

Hey there, future AP Micro master! Let's dive into the heart of microeconomics: Supply and Demand. This is the foundation for everything, so let's make sure you're rock-solid on these concepts. Think of this as your final prep session before the big game! 🏈

#Unit 2: Supply and Demand - The Core Concepts

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• Demand: Represents consumers' desire and ability to purchase goods/services.
• Supply: Represents producers' willingness and ability to offer goods/services.
• Equilibrium: The point where supply and demand intersect, determining market price and quantity.

#Determinants of Demand: TBPIE

# T - Tastes of Consumers 😋

• Changes in consumer preferences directly shift demand.
• Example: A new health study praising avocados increases demand for avocados.
• Key Point: Advertising, trends, and health information all play a role.

# B - Buyers (Number) 🧑‍🤝‍🧑

• More buyers = higher demand; fewer buyers = lower demand.
• Example: A population boom in a city increases the demand for housing.

# P - Price of Related Goods 👯

• Substitutes: Goods used in place of each other.
  • If the price of a substitute falls, demand for the original good decreases.
  • Example: If the price of coffee decreases, demand for tea might fall.
• Complements: Goods used together.
  • If the price of a complement falls, demand for the original good increases.
  • Example: If the price of peanut butter falls, demand for jelly might rise.

# I - Income 💰

• Normal Goods: Demand increases as income rises.
  • Example: Organic food, designer clothing.
• Inferior Goods: Demand decreases as income rises.
  • Example: Instant noodles, used clothing.

# E - Expectations of Future Prices 🔮

• If consumers expect prices to rise, current demand increases.
• If consumers expect prices to fall, current demand decreases.
• Example: A sale announcement causes a spike in current demand.

Practice Question

Multiple Choice Questions

1. Which of the following would cause an increase in the demand for gasoline? (A) An increase in the price of automobiles (B) A decrease in the price of public transportation (C) An increase in the price of crude oil (D) An expected increase in the price of gasoline in the near future (E) A decrease in consumer income

2. If the price of a good decreases, what happens to the demand curve? (A) Shifts to the right (B) Shifts to the left (C) Does not shift but there is movement along the curve (D) Shifts to the right and becomes more elastic (E) Shifts to the left and becomes more inelastic

Free Response Question

Assume the market for smartphones is in equilibrium.

(a) Draw a correctly labeled graph of the smartphone market, showing the equilibrium price and quantity. (b) Suppose a new, highly popular social media app is released that is only compatible with smartphones. On your graph in part (a), show the effect of this on the smartphone market. (c) Now, assume that at the same time, the cost of producing smartphones increases. On a new graph, show how this would affect the market for smartphones. (d) Explain how the changes in parts (b) and (c) affect the equilibrium price and quantity of smartphones.

Answer Key:

Multiple Choice Answers:

1. (D)
2. (C)

Free Response Question Answer:

(a) [1 point] * Correctly labeled axes (Price and Quantity) * Downward sloping demand curve and upward sloping supply curve * Equilibrium point (intersection of supply and demand)

(b) [1 point] * Demand curve shifts to the right

(c) [1 point] * Supply curve shifts to the left

(d) [2 points] * The equilibrium price will increase * The effect on the equilibrium quantity is indeterminate (it depends on the relative magnitude of the shifts)

#Determinants of Supply: TPRENT

# T - Taxes and Subsidies 💵

• Taxes: Higher taxes decrease supply; lower taxes increase supply.
• Subsidies: Higher subsidies increase supply; lower subsidies decrease supply.
• Key Point: Taxes and subsidies directly impact production costs.

# P - Prices of Related Products 🏸

• If the price of a related product increases, supply of the original product decreases.
• Example: If the price of coffee rises, a tea producer might shift to coffee production, decreasing tea supply.

# R - Resources (Price) 🌽

• Higher resource prices decrease supply; lower resource prices increase supply.
• Example: Increased wheat prices decrease the supply of bread.

# E - Expectations of Sellers 📈

• If sellers expect prices to rise, current supply decreases.
• If sellers expect prices to fall, current supply increases.

# N - Number of Sellers 🧑‍🤝‍🧑

• More sellers increase supply; fewer sellers decrease supply.
• Key Point: Market entry and exit directly affect overall supply.

# T - Technology 📱

• Improved technology increases supply; technology breakdowns decrease supply.
• Key Point: Technology impacts efficiency and production capacity.

Practice Question

Multiple Choice Questions

1. Which of the following would cause a decrease in the supply of cars? (A) A decrease in the price of steel (B) An increase in the number of car manufacturers (C) An increase in the wages of autoworkers (D) An improvement in car manufacturing technology (E) A government subsidy for car production

2. If the price of a good increases, what happens to the supply curve? (A) Shifts to the right (B) Shifts to the left (C) Does not shift but there is movement along the curve (D) Shifts to the right and becomes more elastic (E) Shifts to the left and becomes more inelastic

Free Response Question

Assume the market for coffee is in equilibrium.

(a) Draw a correctly labeled graph of the coffee market, showing the equilibrium price and quantity. (b) Suppose a severe frost destroys a large portion of the coffee bean crop. On your graph in part (a), show the effect of this on the coffee market. (c) Now, assume that at the same time, a new study shows the health benefits of coffee consumption. On a new graph, show how this would affect the market for coffee. (d) Explain how the changes in parts (b) and (c) affect the equilibrium price and quantity of coffee.

Answer Key:

Multiple Choice Answers:

1. (C)
2. (C)

Free Response Question Answer:

(a) [1 point] * Correctly labeled axes (Price and Quantity) * Downward sloping demand curve and upward sloping supply curve * Equilibrium point (intersection of supply and demand)

(b) [1 point] * Supply curve shifts to the left

(c) [1 point] * Demand curve shifts to the right

(d) [2 points] * The equilibrium price will increase * The effect on the equilibrium quantity is indeterminate (it depends on the relative magnitude of the shifts)

#Final Exam Focus 🎯

• High-Priority Topics: Determinants of supply and demand, market equilibrium, shifts vs. movements along the curves.
• Common Question Types: Graphing shifts, analyzing market changes, identifying determinants of supply and demand.
• Time Management: Quickly identify the relevant determinants for each scenario. Practice drawing graphs efficiently.
• Common Pitfalls: Confusing shifts with movements, misidentifying substitutes and complements, forgetting the impact of expectations.

Remember, you've got the tools and knowledge to ace this exam. Believe in yourself, stay focused, and let's crush it! 💪