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#Unit 2-Study Guide & FRQ

This study guide covers key concepts in microeconomics related to supply and demand, including the laws of demand and supply, elasticity, consumer and producer surplus, and market equilibrium. It includes topics such as price ceilings and floors, government intervention, and international trade. Additionally, it contains free response questions for practical application of these concepts.

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Abhishek
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21 views4 pages

#Unit 2-Study Guide & FRQ

This study guide covers key concepts in microeconomics related to supply and demand, including the laws of demand and supply, elasticity, consumer and producer surplus, and market equilibrium. It includes topics such as price ceilings and floors, government intervention, and international trade. Additionally, it contains free response questions for practical application of these concepts.

Uploaded by

Abhishek
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Microeconomics Unit 2 Study Guide

Supply and Demand


Topic 2.1- Demand Topic 2.2- Supply
1. What is the law of demand? 1. What is the law of supply?
P↑ Qd ____ P↑ Qs ____
P↓ Qd ____ P↓ Qs ____

2. Why is the market demand curve downward sloping? 2. Why is the market supply curve upward-sloping?

3. What are the five shifters of demand? 3. What are the five shifters of supply?

4. Goods A and B are substitutes. An increase in the Topic 2.4- Price Elasticity of Supply (PES)
price of A will cause the demand for B to __________. 1. Identify the price elasticity of supply coefficient equation

5. Goods X and Y are complements. A decrease in the


price of X will cause the demand for Y to __________.
2. List 3 characteristics of goods with relatively inelastic
6. Good N is a normal good. A decrease in income will
supply.
cause the demand for N to __________.

7. Good R is an inferior good. A decrease in income will


cause the demand for R to __________.
Topic 2.3- Price Elasticity of Demand (PED) Topic 2.5- Other Elasticities
Inelastic Demand Elastic Demand 1. What is cross-price elasticity of demand (XED)?

2. Identify the XED equation.

3. Identify the price elasticity of demand equation.


3. What is income elasticity of demand (YED)?

4. Identify the YED equation.


Coefficient for perfectly inelastic demand =
Coefficient for inelastic demand =
Coefficient for unit elastic demand =
Coefficient for elastic demand =
Coefficient for perfectly elastic demand =
4. Use the total revenue test to fill in the blanks. 5. List 3 characteristics of goods with relatively inelastic
Inelastic Demand Elastic Demand demand.
Price ↑, TR ____ Price ↑, TR ____
Price ↓, TR ____ Price ↓, TR ____
©Copyright Jacob Clifford 2022. Ultimate Review Packet
Do not use unless you have purchased an annual license
Microeconomics Unit 2 Study Guide
Supply and Demand
Topic 2.6- Equilibrium and Consumer and Producer Surplus
1. Define consumer surplus (CS).

2. Define producer surplus (PS).

3. Define deadweight loss (DWL).

4. Calculate the CS at the equilibrium price. Show your work.

5. Calculate the CS if the price was $12. Show your work.

6. Calculate the deadweight loss if the market produced only 20 units.

Topic 2.7- Market Disequilibrium and Changes in Equilibrium


Graph #1 Graph #2 1. Draw a shortage on Graph #1. Label price
(P1), quantity supplied (Qs), and quantity
demanded (Qd). Shade in CS, PS, and DWL.
2. Draw a surplus on Graph #2. Label price
(P2), quantity supplied (Qs), and quantity
demanded (Qd). Shade in CS, PS, and DWL.
3. What is the difference between a change
in demand and a change in quantity
demanded?

4. Draw a demand decrease 5. Draw a demand increase 8. What is the double shift rule?

9. Draw an increase in demand AND an


increase in supply. What happens to the
equilibrium price and quantity?

6. Draw a supply decrease 7. Draw a supply increase

©Copyright Jacob Clifford 2022. Ultimate Review Packet


Do not use unless you have purchased an annual license
Microeconomics Unit 2 Study Guide
Supply and Demand
Topic 2.8- Government Intervention
1. What is a price ceiling? 4. What is a subsidy?

2. What is a price floor?

3. A binding price ceiling must go ___________ equilibrium and results in a


____________. A binding price floor must go ___________ equilibrium.
Complete the following assuming the equilibrium price is $10
5. Identify the consumer surplus (CS)
6. Identify the producer surplus (PS)
7. Identify the CS if a price ceiling is placed at $12
8. Identify the CS if a price floor is placed at $12
Identify the following after the tax is imposed
9. The tax per unit
10. CS after tax
11. PS after tax
12. Deadweight loss
13. Total tax revenue
14. Total spending by buyers
15. Total revenue to sellers
16. Total amount of tax buyers pay
17. Total amount of tax sellers pay
Identify if buyers or sellers pay more of a tax in the
18. Is the demand curve between $12 and $10 elastic, inelastic, following situations.
or unit elastic? Explain.
20. Demand is more inelastic than supply.

19. Calculate the elasticity of supply coefficient as price 21. Demand and supply have the same elasticity.
increases from $10 to $12. Show your work.
22. Supply is more inelastic than demand.

Topics 2.9- International Trade and Public Policy


Calculate the following at the equilibrium price. The graph below shows the domestic market for rice.
1. Consumer surplus
2. Producer surplus
3. Total surplus
Calculate the following if this country buys rice from other
countries at the world price of $5. Show your work.
4. Quantity produced domestically
5. Quantity imported
6. Consumer surplus
7. Producer surplus
Identify the following if the government places a tariff of $1
on foreign rice. Show your work.
8. Consumer surplus
9. Tariff revenue
10. Deadweight loss
©Copyright Jacob Clifford 2022. Ultimate Review Packet
Do not use unless you have purchased an annual license
Microeconomics Unit 2
Free Response Questions
FRQ #1- Assume that beef is sold in a competitive market and that beef is a normal good and a substitute for chicken.
(a) Draw a correctly labeled graph of the beef market.
(i) Show the equilibrium price and quantity of beef, labeled PE and QE respectively.
(ii) Shade in the area of the total consumer surplus at the market equilibrium price and quantity.
(iii) If the government places a price ceiling on beef below PE, would the demand for beef increase, decrease, or
stay the same? Explain.
(b) On your graph, show the effect on the market for beef if the price of chicken falls significantly. Label the new
equilibrium price and quantity P1 and Q1.
(c) Assume instead that the incomes of consumers increase and the government subsidizes beef producers. What
will happen to the equilibrium price and quantity of beef as a result of both events? Explain.
(d) Assume that the total revenue for chicken producers increased when the price of chicken fell. Is the demand for
chicken relatively inelastic, relatively elastic, or unit elastic?

FRQ #2- The graph below shows the market for extra large Chicago-style pizzas.

(a) Calculate the total consumer surplus at the market equilibrium price and quantity. Show your work.
(b) If the government imposes a price ceiling at $30, is there a shortage, a surplus, or neither? Explain.
(c) Assume that the price fell from $24 to $18.
(i) Calculate the price elasticity of demand in this price range. Show your work.
(ii) In this price range, is demand perfectly inelastic, relatively inelastic, unit elastic, relatively elastic,
or perfectly elastic?
(d) Assume instead that the government placed a $12 per unit tax on extra large Chicago-style pizzas.
(i) Calculate the total tax revenue collected by the government. Show your work.
(ii) Calculate the deadweight loss. Show your work.
(iii) If the demand for extra large Chicago-style pizzas became more inelastic than the supply, will the tax burden
fall more on buyers and less on sellers or more on sellers and less on buyers, or equally on buyers and
sellers?

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