AP Macroeconomics · Unit 2
Supply, Demand, Elasticity: every key term you need
13 flashcard terms for AP Macroeconomics Unit 2, written to match the course framework. Study them here, then drill them as interactive flashcards — free, no account needed.
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Demand Law Quantity demanded increases as price decreases. Inverse relationship. Demand curve slopes downward.
Supply Law Quantity supplied increases as price increases. Direct relationship. Supply curve slopes upward.
Market Equilibrium Price where Qs = Qd; supply equals demand. No tendency to change. Shortage (Qd>Qs) → price up. Surplus (Qs>Qd) → price down.
Determinants of Demand Income (normal vs inferior goods), preferences, expectations, substitutes/complements, number of buyers.
Determinants of Supply Input prices (wages, materials), technology, expectations, substitutes in production, number of sellers.
Shift vs Movement Movement along curve: price change. Shift of curve: other factors change (income, technology, etc.).
Price Elasticity of Demand (PED) PED = (% change in Qd) / (% change in P). Elastic >1 (sensitive to price), inelastic <1 (insensitive).
Unit Elastic PED = 1; % change in quantity = % change in price. Revenue unchanged if price changes.
Perfectly Elastic vs Inelastic Elastic: horizontal demand (any price increase → zero quantity). Inelastic: vertical demand (quantity unchanged regardless of price).
Determinants of Elasticity Substitutes available, necessity vs luxury, percent of budget. Close substitutes = elastic. Few substitutes = inelastic.
Price Elasticity of Supply (PES) PES = (% change in Qs) / (% change in P). Elastic >1, inelastic <1. More elastic long-run than short-run.
Cross-Price Elasticity (% change in Qd of good A) / (% change in P of good B). Positive: substitutes. Negative: complements.
Unit 2 Summary Supply-demand equilibrium determines price/quantity. Elasticity measures responsiveness. Changes in determinants shift curves, affecting equilibrium.
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