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Supply and Demand

Paul Scott

Paul Scott

7 min read

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Study Guide Overview

This AP Microeconomics study guide covers supply and demand fundamentals, including the demand curve and the law of demand, the supply curve and the law of supply, and market equilibrium. It emphasizes the distinction between changes in quantity supplied/demanded versus supply/demand. The guide also provides practice questions, including multiple-choice and free-response questions, focusing on graphing, analyzing market shifts, and understanding government interventions like price floors and ceilings.

AP Microeconomics: Supply and Demand - Your Ultimate Guide

Hey there, future AP Micro ace! 👋 Let's get you prepped and confident for your exam. This guide is designed to be your go-to resource, especially the night before the big day. We're going to break down supply and demand, making sure everything clicks. Let's do this!

Unit 2: Supply and Demand Fundamentals

The Demand Curve

  • Definition: The demand curve represents the total of all individual demands at various price points.
  • Law of Demand: As price increases, quantity demanded decreases, and vice versa. 📉 It's all about what consumers want and can afford.
Memory Aid

Think of it like this: if your favorite snack suddenly costs twice as much, you'd probably buy less of it, right? That's the law of demand in action!

  • Visual: The demand curve slopes downward.

Demand Curve

Caption: The demand curve shows an inverse relationship between price and quantity demanded.

The Supply Curve

  • Definition: The supply curve is the sum of all individual suppliers at different price points. It shows how much of a product is available.
  • Law of Supply: As price increases, quantity supplied increases, and vice versa. 📈 Businesses want to make more money, so they'll produce more when prices are high.
Memory Aid

Imagine you're a lemonade stand owner. If the price of lemonade goes up, you'd want to make and sell more, right? That's the law of supply!

  • Visual: The supply curve slopes upward.

Supply Curve

Caption: The supply curve illustrates a direct relationship between price and quantity supplied.

Quantity Supplied/Demanded vs. Supply/Demand

Key Concept

It's crucial to distinguish between quantity demanded/supplied and demand/supply.

  • Quantity Demanded/Supplied: Refers to a specific point on the curve (the x-value). It changes when price changes.
  • Demand/Supply: Refers to the entire curve. It shifts due to factors other than price.
Common Mistake

Common Mistake: Confusing a change in quantity demanded/supplied (movement along the curve) with a change in demand/supply (a shift of the entire curve). Remember, price changes cause movement along the curve, while other factors cause the curve to shift.

Putting It All Together: Market Equilibrium

  • Market Equilibrium: The point where the supply and demand curves intersect. At this point, quantity demanded equals quantity supplied. 🤝
  • Equilibrium Price and Quantity: The price and quantity at the intersection point. This is where the market is most stable.

Supply and Demand Equilibrium

Caption: Market equilibrium is where the supply and demand curves intersect, determining the market price and quantity.

Quick Fact

The market equilibrium is the foundation for understanding how markets work. It's a core concept you'll use throughout AP Micro.

Final Exam Focus

  • High-Priority Topics:
    • Understanding the laws of supply and demand.
    • Distinguishing between movements along the curves and shifts of the curves.
    • Identifying market equilibrium and its implications.
  • Common Question Types:
    • Graphing supply and demand curves.
    • Analyzing how different factors shift the curves.
    • Determining the effects of government interventions (like price floors and ceilings).
  • Last-Minute Tips:
    • Time Management: Don't spend too long on one question. If you're stuck, move on and come back later.
    • Common Pitfalls: Watch out for confusing quantity demanded/supplied with demand/supply. Always read the question carefully!
    • Strategies: Practice drawing graphs quickly and accurately. Use mnemonics to remember key concepts.

Practice Question

Practice Questions

Multiple Choice Questions

  1. Which of the following would cause a shift in the demand curve for coffee? (A) A change in the price of coffee (B) A change in consumer income (C) A change in the price of tea (D) Both B and C (E) None of the above

  2. If the price of a good increases, what happens to the quantity supplied, according to the law of supply? (A) It decreases (B) It increases (C) It remains the same (D) It may increase or decrease depending on the good (E) It becomes undefined

  3. What does the intersection of the supply and demand curves represent? (A) Consumer surplus (B) Producer surplus (C) Market equilibrium (D) A shortage (E) A surplus

Free Response Question

Assume the market for widgets is perfectly competitive. The demand and supply curves are given by the following equations, where P is the price and Q is the quantity:

Demand: Qd=1002PQ_d = 100 - 2P

Supply: Qs=3P50Q_s = 3P - 50

(a) Calculate the equilibrium price and quantity in the widget market. (4 points)

(b) Suppose the government imposes a price floor of 40.Calculatethenewquantitydemandedandquantitysupplied.(2points)40. Calculate the new quantity demanded and quantity supplied. (2 points)

(c) Will there be a surplus or shortage at the price floor of40? If so, how large is the surplus or shortage? (2 points)

(d) Graph the supply and demand curves, and show the market equilibrium and the effects of the price floor. (4 points)

FRQ Scoring Breakdown

(a) Calculate the equilibrium price and quantity in the widget market. (4 points)

  • Point 1: Set Qd=QsQ_d = Q_s (1 point)

    1002P=3P50100 - 2P = 3P - 50

  • Point 2: Solve for equilibrium price (1 point)

    150=5P150 = 5P P=30P = 30

  • Point 3: Substitute equilibrium price into either QdQ_d or QsQ_s (1 point)

    Q=1002(30)=40Q = 100 - 2(30) = 40 or Q=3(30)50=40Q = 3(30) - 50 = 40

  • Point 4: State equilibrium quantity (1 point)

    Equilibrium quantity = 40

(b) Suppose the government imposes a price floor of 40.Calculatethenewquantitydemandedandquantitysupplied.(2points)40. Calculate the new quantity demanded and quantity supplied. (2 points)

  • Point 1: Substitute the price floor of40 into the demand equation (1 point)

    Qd=1002(40)=20Q_d = 100 - 2(40) = 20

  • Point 2: Substitute the price floor of 4040 into the supply equation (1 point)

    Qs=3(40)50=70Q_s = 3(40) - 50 = 70

(c) Will there be a surplus or shortage at the price floor of 40?Ifso,howlargeisthesurplusorshortage?(2points)40? If so, how large is the surplus or shortage? (2 points)

  • Point 1: Identify whether there is a surplus or shortage (1 point)

    SinceQ_s > Q_d,thereisasurplus., there is a surplus.

  • Point 2: Calculate the size of the surplus (1 point)

    Surplus =Q_s - Q_d = 70 - 20 = 50[objectObject][object Object]

  • Point 1: Correctly label the axes and curves (1 point)

  • Point 2: Show the correct equilibrium point (1 point)

  • Point 3: Show the price floor atP=40$ (1 point)

  • Point 4: Show the resulting surplus (1 point)

Alright, you've got this! Remember to stay calm, read each question carefully, and trust your knowledge. You're well-prepared and ready to ace this exam! 🚀

Question 1 of 11

What does the demand curve represent? 🤔

The total of all individual demands at various price points

The sum of all individual suppliers at different price points

The relationship between quantity supplied and price

The point where supply and demand are equal