AP Microeconomics Exam
Review QUESTIONS AND
VERIFIED CORRECT
ANSWERS GRADED A+
LATEST 100% GUARANTEED
PASS
Producer Surplus - CORRECT ANSWER-The difference between the price received and the
marginal cost of producing the good
Consumer Surplus on the Graph - CORRECT ANSWER-The area under the demand curve and
above the market price is equal to total consumer surplus
Producer Surplus on the Graph - CORRECT ANSWER-The area above the supply curve and below
the market price is equal to total producer surplus
Elasticity - CORRECT ANSWER-Measures the sensitivity, or responsiveness, of a choice to a
change in an external factor
Price Elasticity of Demand - CORRECT ANSWER-Measures the sensitivity of consumer quantity
demanded for good X when the price of good X changes
Price Elasticity Formula - CORRECT ANSWER-Ed= (%change in quantity demanded of good
X)/(%change in the price of good X)
,A good is price elastic if... - CORRECT ANSWER-If Ed > 1
A good is unit price elastic if... - CORRECT ANSWER-If Ed = 1
A good is price inelastic if... - CORRECT ANSWER-If Ed < 1
Elasticity on the Demand Curve - CORRECT ANSWER-Above the midpoint demand is price elastic
At the midpoint demand is unit elastic
Below the midpoint the demand is price inelastic
Delta Percentage - CORRECT ANSWER-Delta Percentage = [final cost - initial cost]/initial cost
Perfectly Inelastic - CORRECT ANSWER-Any increase in the price results in no decrease in the
quantity demanded
Perfectly Elastic - CORRECT ANSWER-A decrease in the price causes the quantity demanded to
increase without limits
As the demand curve becomes more vertical - CORRECT ANSWER-The price elasticity falls and
consumers become more price inelastic
As the demand curve becomes more horizontal - CORRECT ANSWER-The price elasticity
increases and consumers become more price elastic
Determinants of Elasticity - CORRECT ANSWER--Number of Good Substitutes
-Proportion of Income
, -Time
Number of Good Substitutes - CORRECT ANSWER-If the price of good X increase, and many
(few) substitutes exist, the decrease in quantity demanded can be quite elastic (inelastic)
Proportion of Income - CORRECT ANSWER-If the price of a good increases, the consumer loses
purchasing power. If that good takes up a large (small) portion of the consumers income his
responsiveness will be significant (insignificant), or elastic (inelastic)
Time - CORRECT ANSWER-it is expected that price elasticity increases (decreases) as more (less)
time passes after the initial increase in price
Total Revenue - CORRECT ANSWER-TR = Price * Quantity Demanded
Total Revenue and Elasticity - CORRECT ANSWER-If demand is inelastic TR increases with a price
increase
If demand is elastic TR decreases with a price increases
If demand is unit elastic TR stays the same
Income Elasticity - CORRECT ANSWER-A measure of how sensitive consumption of good X is to a
change in a consumer's income
Income Elasticity Formula - CORRECT ANSWER-Ei = (%change Qd good X) / (%change income)
Luxury vs. Necessity vs. Inferior goods - CORRECT ANSWER-If Ei > 1, the good is normal and
income elastic (luxury)
If 1 > Ei > 0, the good is normal but income inelastic (a necessity)
If Ei < 0, the good is inferior
Review QUESTIONS AND
VERIFIED CORRECT
ANSWERS GRADED A+
LATEST 100% GUARANTEED
PASS
Producer Surplus - CORRECT ANSWER-The difference between the price received and the
marginal cost of producing the good
Consumer Surplus on the Graph - CORRECT ANSWER-The area under the demand curve and
above the market price is equal to total consumer surplus
Producer Surplus on the Graph - CORRECT ANSWER-The area above the supply curve and below
the market price is equal to total producer surplus
Elasticity - CORRECT ANSWER-Measures the sensitivity, or responsiveness, of a choice to a
change in an external factor
Price Elasticity of Demand - CORRECT ANSWER-Measures the sensitivity of consumer quantity
demanded for good X when the price of good X changes
Price Elasticity Formula - CORRECT ANSWER-Ed= (%change in quantity demanded of good
X)/(%change in the price of good X)
,A good is price elastic if... - CORRECT ANSWER-If Ed > 1
A good is unit price elastic if... - CORRECT ANSWER-If Ed = 1
A good is price inelastic if... - CORRECT ANSWER-If Ed < 1
Elasticity on the Demand Curve - CORRECT ANSWER-Above the midpoint demand is price elastic
At the midpoint demand is unit elastic
Below the midpoint the demand is price inelastic
Delta Percentage - CORRECT ANSWER-Delta Percentage = [final cost - initial cost]/initial cost
Perfectly Inelastic - CORRECT ANSWER-Any increase in the price results in no decrease in the
quantity demanded
Perfectly Elastic - CORRECT ANSWER-A decrease in the price causes the quantity demanded to
increase without limits
As the demand curve becomes more vertical - CORRECT ANSWER-The price elasticity falls and
consumers become more price inelastic
As the demand curve becomes more horizontal - CORRECT ANSWER-The price elasticity
increases and consumers become more price elastic
Determinants of Elasticity - CORRECT ANSWER--Number of Good Substitutes
-Proportion of Income
, -Time
Number of Good Substitutes - CORRECT ANSWER-If the price of good X increase, and many
(few) substitutes exist, the decrease in quantity demanded can be quite elastic (inelastic)
Proportion of Income - CORRECT ANSWER-If the price of a good increases, the consumer loses
purchasing power. If that good takes up a large (small) portion of the consumers income his
responsiveness will be significant (insignificant), or elastic (inelastic)
Time - CORRECT ANSWER-it is expected that price elasticity increases (decreases) as more (less)
time passes after the initial increase in price
Total Revenue - CORRECT ANSWER-TR = Price * Quantity Demanded
Total Revenue and Elasticity - CORRECT ANSWER-If demand is inelastic TR increases with a price
increase
If demand is elastic TR decreases with a price increases
If demand is unit elastic TR stays the same
Income Elasticity - CORRECT ANSWER-A measure of how sensitive consumption of good X is to a
change in a consumer's income
Income Elasticity Formula - CORRECT ANSWER-Ei = (%change Qd good X) / (%change income)
Luxury vs. Necessity vs. Inferior goods - CORRECT ANSWER-If Ei > 1, the good is normal and
income elastic (luxury)
If 1 > Ei > 0, the good is normal but income inelastic (a necessity)
If Ei < 0, the good is inferior
