Ap Micro Unit 2 Progress Check Mcq

AP Micro Unit 2 Progress Check MCQ: A Comprehensive Guide

The AP Microeconomics Unit 2 Progress Check MCQ covers a significant portion of the course, focusing on supply and demand, market equilibrium, elasticity, and consumer and producer surplus. Mastering this unit is crucial for success on the AP exam. This guide provides a comprehensive review of key concepts and practice questions to help you ace the Progress Check.

Understanding Supply and Demand

This forms the bedrock of Unit 2. A thorough grasp of these concepts is paramount.

Supply: The Producer's Perspective

• Definition: Supply represents the willingness and ability of producers to offer goods and services at various price points. The supply curve typically slopes upwards, illustrating the positive relationship between price and quantity supplied – producers offer more at higher prices.
• Shifters of Supply: Several factors can shift the supply curve. Understanding these is vital:
  • Input Prices: An increase in input prices (like raw materials or labor) will decrease supply, shifting the curve to the left.
  • Technology: Technological advancements typically increase supply, shifting the curve to the right.
  • Government Policies: Taxes increase the cost of production, decreasing supply, while subsidies have the opposite effect.
  • Expectations: If producers expect future prices to rise, they might decrease current supply.
  • Number of Sellers: An increase in the number of firms in a market will increase supply.

Demand: The Consumer's Perspective

• Definition: Demand represents the willingness and ability of consumers to purchase goods and services at various price points. The demand curve usually slopes downwards, reflecting the inverse relationship between price and quantity demanded – consumers buy more at lower prices.
• Shifters of Demand: Similar to supply, several factors shift the demand curve:
  • Consumer Income: For normal goods, an increase in income increases demand; for inferior goods, it decreases demand.
  • Prices of Related Goods: A substitute's price increase boosts demand for the original good; a complement's price increase reduces demand.
  • Consumer Tastes and Preferences: Changes in consumer preferences can dramatically shift demand.
  • Consumer Expectations: Expectations of future price increases might boost current demand.
  • Number of Buyers: An increase in the number of consumers in a market increases demand.

Market Equilibrium: Where Supply Meets Demand

The point where the supply and demand curves intersect defines market equilibrium. This point represents the market-clearing price and quantity – the price at which the quantity supplied equals the quantity demanded.

Surplus and Shortage

• Surplus: When the price is above the equilibrium price, the quantity supplied exceeds the quantity demanded, resulting in a surplus. This typically leads to price reductions to clear the surplus.
• Shortage: When the price is below the equilibrium price, the quantity demanded exceeds the quantity supplied, creating a shortage. This usually leads to price increases.

Elasticity: Measuring Responsiveness

Elasticity measures the responsiveness of quantity demanded or supplied to changes in price or other factors.

Price Elasticity of Demand (PED)

PED measures the percentage change in quantity demanded in response to a percentage change in price. It's crucial to understand the different types of elasticity:

• Elastic Demand (PED > 1): A small price change causes a large change in quantity demanded. This is typical for goods with many substitutes.
• Inelastic Demand (PED < 1): A significant price change causes a small change in quantity demanded. This is common for necessities or goods with few substitutes.
• Unit Elastic Demand (PED = 1): The percentage change in quantity demanded equals the percentage change in price.
• Perfectly Elastic Demand (PED = ∞): A tiny price increase leads to zero quantity demanded.
• Perfectly Inelastic Demand (PED = 0): Price changes have no effect on quantity demanded.

Factors Affecting Price Elasticity of Demand

• Availability of Substitutes: More substitutes lead to more elastic demand.
• Necessity vs. Luxury: Necessities tend to have inelastic demand.
• Time Horizon: Demand becomes more elastic over time.
• Proportion of Income Spent: Goods representing a larger proportion of income tend to be more elastic.

Price Elasticity of Supply (PES)

PES measures the percentage change in quantity supplied in response to a percentage change in price. Similar classifications apply as with PED: elastic, inelastic, unit elastic, perfectly elastic, and perfectly inelastic.

Other Elasticities

Beyond price elasticity, other elasticities are also important:

• Income Elasticity of Demand (YED): Measures the responsiveness of demand to changes in consumer income.
• Cross-Price Elasticity of Demand (XED): Measures the responsiveness of demand for one good to a change in the price of another good.

Consumer and Producer Surplus

These concepts measure the net benefit to consumers and producers in a market.

Consumer Surplus

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price they pay. It represents the benefit consumers receive from purchasing a good at a price lower than their willingness to pay.

Producer Surplus

Producer surplus is the difference between the actual price a producer receives and the minimum price they are willing to accept. It represents the benefit producers receive from selling a good at a price higher than their minimum acceptable price.

Total Surplus

Total surplus is the sum of consumer and producer surplus. It represents the overall economic efficiency of a market.

Practice MCQ Questions

Let's test your understanding with some practice multiple choice questions:

1. Which of the following would NOT shift the demand curve for gasoline? (a) A decrease in the price of electric cars. (b) An increase in consumer income. (c) A decrease in the price of gasoline. (d) An increase in the price of public transportation.

Answer: (c) A change in the price of gasoline leads to a movement along the demand curve, not a shift of the entire curve.

2. If the price elasticity of demand for a good is 0.5, the demand is: (a) Elastic (b) Inelastic (c) Unit elastic (d) Perfectly elastic

Answer: (b) Since PED < 1, the demand is inelastic.

3. A surplus occurs when: (a) Quantity demanded exceeds quantity supplied. (b) Quantity supplied exceeds quantity demanded. (c) Price is below equilibrium price. (d) Both (a) and (c)

Answer: (b) A surplus implies that the quantity supplied is greater than the quantity demanded, typically occurring when the price is above equilibrium.

4. Which of the following would increase the price elasticity of demand for a product? (a) A decrease in the number of substitutes available. (b) An increase in the proportion of income spent on the good. (c) A decrease in the time period considered. (d) The good becoming a necessity.

Answer: (b) A larger proportion of income spent on a good increases its elasticity.

5. Consumer surplus is: (a) The difference between the price a consumer is willing to pay and the price they actually pay. (b) The difference between the price a producer receives and the minimum price they are willing to accept. (c) The total revenue received by producers. (d) The sum of consumer and producer surplus.

Answer: (a) This is the direct definition of consumer surplus.

This comprehensive review covers the core concepts of AP Microeconomics Unit 2. By understanding supply and demand, market equilibrium, elasticity, and consumer and producer surplus, you will be well-prepared to tackle the Progress Check MCQ and the AP exam itself. Remember to practice regularly with various questions and review the material thoroughly to solidify your understanding. Good luck!