A deeper dive into the model from Unit 1. Elasticity, consumer and producer surplus, market efficiency, price controls, excise taxes, and the effects of international trade — the most heavily weighted topic area on the exam.
Seven topics from the College Board CED, in order.
Topic 2.1
Price Elasticity of Demand
Measuring how responsive quantity demanded is to a price change; calculating and interpreting elasticity coefficients.
Topic 2.2
Determinants & Applications of Elasticity of Demand
Why availability of substitutes, necessity vs. luxury, and time horizon change how elastic demand is.
Topic 2.3
Cross-Price & Income Elasticity of Demand
Measuring how demand for one good responds to changes in another good's price or to changes in income.
Topic 2.4
Price Elasticity of Supply
Measuring how responsive quantity supplied is to a price change, and what determines that responsiveness.
Topic 2.5
Consumer & Producer Surplus, Market Efficiency
Measuring the gains buyers and sellers get from trade, and what makes a market allocatively efficient.
Topic 2.6
Price Controls (Ceilings & Floors)
How binding price ceilings and floors create shortages or surpluses and reduce total surplus.
Topic 2.7
Excise Taxes, Subsidies & Tax Incidence
How taxes and subsidies shift markets, create deadweight loss, and split the burden between buyers and sellers.
About Unit 2
Unit 2 takes the basic supply-and-demand model from Unit 1 and adds the analytical tools that let you measure markets precisely. Elasticity quantifies how responsive buyers and sellers are to price changes — a concept that recurs constantly in later units, especially when analyzing taxes and government intervention.
You'll also learn to measure consumer surplus, producer surplus, and total surplus — the foundation for evaluating whether a market outcome is efficient. This sets up the rest of the unit: what happens to that surplus when government imposes a price ceiling, a price floor, or an excise tax.
This unit is roughly 20–25% of the AP Micro exam — the single most heavily weighted unit — and takes about 15–17 class periods. Graphing fluency here (supply/demand shifts, surplus regions, deadweight loss triangles) pays off across the rest of the course.
Responsiveness
Elasticity measures how sensitive quantity is to price and other factors
Efficiency
Markets maximize total surplus at the competitive equilibrium
Government Intervention
Price controls and taxes create deadweight loss by moving markets away from equilibrium