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Unit 2 · Supply and Demand Unit Hub Flashcards Cheat Sheet Essentials Visual Review MC Practice FRQ Practice

AP Microeconomics Unit 2 Visual Review

An 8-slide visual review of Supply and Demand — elasticity, surplus, deadweight loss, and price controls, built right into the page.

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UNIT 2 · SLIDE 1 Price Elasticity of Demand (PED) ELASTIC — flatter Q responds a lot to price INELASTIC — steeper Q barely responds to price The formula PED = %ΔQd ÷ %ΔP |PED| > 1 elastic · |PED| < 1 inelastic · = 1 unit elastic Perfectly inelastic = vertical · perfectly elastic = horizontal What makes demand MORE elastic? • Many close substitutes available • A luxury rather than a necessity • Takes a large share of your income • Buyers have more time to adjust Insulin: inelastic. A specific soda brand: elastic. Elasticity measures responsiveness — the % change in quantity for a given % change in price. The Review Hub · AP Microeconomics Unit 2
PED = %ΔQd ÷ %ΔP. Flatter curves are more elastic, steeper curves more inelastic. Substitutes, luxuries, big-budget items, and longer time horizons all make demand more elastic.
UNIT 2 · SLIDE 2 The Total Revenue Test TR = Price × Quantity ELASTIC demand (|PED| > 1) Price and Total Revenue move OPPOSITE P ↑ → TR ↓ P ↓ → TR ↑ The % drop in quantity outweighs the % gain in price. INELASTIC demand (|PED| < 1) Price and Total Revenue move TOGETHER P ↑ → TR ↑ P ↓ → TR ↓ Quantity barely changes, so the price change dominates revenue. Unit elastic (|PED| = 1): a price change leaves total revenue unchanged — TR is at its maximum. FRQ favorite: use the TR test to identify elasticity from a price change — opposite = elastic, together = inelastic. The Review Hub · AP Microeconomics Unit 2
If price and total revenue move in opposite directions, demand is elastic. If they move together, demand is inelastic. If TR doesn't change, demand is unit elastic.
UNIT 2 · SLIDE 3 The Other Three Elasticities Income elasticity (YED) %ΔQd ÷ %Δincome Positive → normal good Negative → inferior good Income ↑ → buy more steak (normal), less instant ramen (inferior). Sign tells you the good type Cross-price elasticity (XED) %ΔQd of A ÷ %ΔP of B Positive → substitutes Negative → complements Coke price ↑ → Pepsi Qd ↑ (subs) Console price ↑ → game Qd ↓ (complements). Sign tells the relationship Elasticity of supply (PES) %ΔQs ÷ %ΔP Driven by TIME & flexibility More time → more elastic Concert seats tonight: fixed (inelastic). Factories can scale over years (elastic). Time is the key determinant For YED and XED the SIGN carries the meaning — memorize positive vs. negative, not just the formulas. The Review Hub · AP Microeconomics Unit 2
Income elasticity separates normal (+) from inferior (−) goods. Cross-price separates substitutes (+) from complements (−). Supply elasticity mostly depends on time to adjust.
UNIT 2 · SLIDE 4 Consumer & Producer Surplus D S Pₑ Qₑ CS PS Consumer surplus (CS) Willingness to pay − price actually paid. The triangle BELOW demand, ABOVE price. Producer surplus (PS) Price received − minimum acceptable price (cost). The triangle ABOVE supply, BELOW price. Total surplus = CS + PS Maximized at equilibrium — this is what economists mean by allocative efficiency. Free markets at equilibrium maximize total surplus — any price or quantity distortion shrinks it. The Review Hub · AP Microeconomics Unit 2
CS is the triangle below demand and above price; PS is above supply and below price. Together they're total surplus, which is maximized at the market equilibrium.
UNIT 2 · SLIDE 5 Deadweight Loss (DWL) D S Q restricted DWL Qₑ What DWL is Surplus from trades that SHOULD happen but don't. Between the restricted Q and Qₑ, buyers value units more than they cost to make — but no trade occurs. It goes to NO ONE — not consumers, producers, or gov't. What causes it • Excise taxes (Q falls below Qₑ) • Binding price ceilings & floors • Monopoly output restriction (Unit 4) • Tariffs and quotas on trade Anything that pushes quantity away from equilibrium. DWL is the efficiency cost of intervention — the triangle always points at the equilibrium. The Review Hub · AP Microeconomics Unit 2
When anything pushes quantity away from equilibrium, some mutually beneficial trades never happen. That lost surplus — the triangle pointing at E — is deadweight loss.
UNIT 2 · SLIDE 6 Price Controls: Ceilings & Floors CEILING Qs Qd SHORTAGE (Qd > Qs) Binding ceiling sits BELOW equilibrium · ex: rent control FLOOR Qd Qs SURPLUS (Qs > Qd) Binding floor sits ABOVE equilibrium · ex: minimum wage Memory hook: a binding ceiling is LOW (below Pₑ) and a binding floor is HIGH (above Pₑ) — both cause DWL. The Review Hub · AP Microeconomics Unit 2
A binding ceiling (below equilibrium) creates a persistent shortage; a binding floor (above equilibrium) creates a persistent surplus. Both prevent the market from clearing and create deadweight loss.
UNIT 2 · SLIDE 7 Excise Taxes & Tax Incidence D S S+tax P buyers P sellers Q tax tax wedge What the tax does Shifts supply UP by exactly the tax per unit. Buyers pay MORE (P buyers), sellers keep LESS (P sellers), and quantity falls below Qₑ → DWL. Government revenue = tax × Q tax (the wedge rectangle) Who pays? Incidence follows elasticity The MORE INELASTIC side bears MORE of the tax — they can't escape the market as easily. • Inelastic demand (gas, cigarettes) → buyers pay most • Elastic demand → sellers absorb most of the tax Legal incidence ≠ economic incidence — the market decides. Tax burden lands on whoever is less able to walk away — the more inelastic side of the market. The Review Hub · AP Microeconomics Unit 2
An excise tax shifts supply up by the tax, splitting the price into what buyers pay and what sellers keep. The more inelastic side bears more of the burden, and the lost quantity creates DWL.
UNIT 2 · SLIDE 8 Unit 2 Quick Reference — Know These Cold Elasticity formulas PED = %ΔQd ÷ %ΔP · PES = %ΔQs ÷ %ΔP YED sign: + normal, − inferior XED sign: + substitutes, − complements |PED| > 1 elastic · < 1 inelastic · = 1 unit elastic Total revenue test Elastic: P and TR move in opposite directions Inelastic: P and TR move together Unit elastic: TR unchanged (at its max) TR = P × Q — sketch the rectangle under the curve Price controls Binding ceiling: BELOW Pₑ → shortage Binding floor: ABOVE Pₑ → surplus Q traded = the SHORT side of the market Both create deadweight loss — market can't clear Taxes & surplus Tax revenue = tax per unit × Q after tax Incidence: more inelastic side pays more CS below D above P · PS above S below P Total surplus is maximized at equilibrium — no DWL Unit 2 is 20–25% of the exam — the single most-tested unit. Graph practice pays off here. The Review Hub · AP Microeconomics Unit 2
The essentials in one place: elasticity formulas and signs, the total revenue test, price-control outcomes, and tax incidence. Unit 2 carries the largest exam weighting — drill these until they're automatic.
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How to use the visual review

Spend 30 seconds per step before clicking next. Look at the diagram, then ask yourself: "Could I sketch this from memory and label every part?"

Use the dots below the diagram to jump straight to any step, or the arrow keys to move forward and back.

This is great for review the night before the exam — fast, visual, and covers every core diagram you need to remember from Unit 2.