AP Microeconomics



AP Microeconomics Exam Review Packet #2

1. Pricing system serves as a rationing device

a. Even when price ceilings are implemented to keep prices at a “fair” level, the rationing system will usually win out.

2. Consumer Surplus Producer Surplus

3. Elasticity

Formula

|Term |Def |Formula |Examples |Graph |

| | | | | |

|Elastic | | | | |

| | | | | |

|Inelastic | | | | |

| | | | | |

|Unit Elastic | | | | |

| | | | | |

|Perfectly Elastic | | | | |

| | | | | |

|Perfectly Inelastic | | | | |

4. Factors that determine the price elasticity of goods & services

5. Price of strawberries increase from $3 to $4 per pint and sales of strawberries decrease by 50%, how elastic are demand for strawberries?

6. Price of iPhones decrease by 25% and sales increase by 33%, how elastic is the demand for iPhones?

7. Demand Graph and elasticity:

8. Using the numbers below, do the revenue test:

|Price |Quantity |Total Revenue |

|$1 |10 | |

|2 |8 | |

|3 |6 | |

|4 |4 | |

|5 |2 | |

|6 |0 | |

a. Price increase from $1 to $2, type of elasticity and what happens to TR?

b. Price change from $3 to $4, type of elasticity and what happens to TR?

c. Price change from $4 to $5, type of elasticity and what happens to TR?

9. Elasticity of Demand Graph & TR Graph Relationship:

10. Cross-Elasticity of Demand

11. Income Elasticity of Demand

12. Utility, Marginal Utility, & Diminishing Marginal Utility

a. Constraints to utility

13. Utility-Maximizing Rule

a. Finding Utility Maximizing Rule:

|Units of |Utility |Marginal Utility |MU/P |Units of |Utility |Marginal Utility |MU/P |

|CDs | |MU | |Candy | |MU | |

|1 |56 |56 | |1 |32 | | |

|2 |104 |48 | |2 |60 | | |

|3 |136 |32 | |3 |84 | | |

|4 |160 |24 | |4 |104 | | |

|5 |180 |20 | |5 |116 | | |

|6 |196 |16 | |6 |126 | | |

|7 |208 |12 | |7 |134 | | |

Budget Constraint: $52

Price of CDs: $8

Price of Gum: $4

14. Income Effect

15. Substitution Effect

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