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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