AP Microeconomics Unit 2 Cheatsheet: Supply and Demand

Movement along curve: Own-price change only

Demand curve shift: Change in determinants (income, preferences, prices of related goods, number of buyers, expectations)

Why downward slope?

• Substitution effect: higher price → buy cheaper alternatives
• Income effect: higher price → less purchasing power
• Diminishing marginal utility: each unit worth less

Market demand: Sum of all individual demand curves at each price

Shortage: Qty Demanded > Qty Supplied (price below equilibrium) → upward pressure on price

Surplus: Qty Supplied > Qty Demanded (price above equilibrium) → downward pressure on price

Market forces: Drive price and quantity back toward equilibrium

Shifts in D or S: Change equilibrium price and quantity; impact on consumer/producer surplus and total surplus depends on elasticities

Taxes: Shift supply or demand; reduce quantity traded; create deadweight loss; incidence (burden on buyers vs. sellers) depends on elasticity

Subsidies: Shift supply or demand; increase quantity; reduce price; create deadweight loss; affect government costs

Autarky: No international trade; domestic equilibrium price may differ from world price

Trade opening: Equilibrium price moves toward world price; affects consumer/producer surplus and total surplus

Tariff: Tax on imports → raises domestic price, reduces imports, generates government revenue, reduces total surplus

Quota: Limit on imports → raises domestic price, reduces imports, creates deadweight loss