Unit 2 Test: Supply and Demand
Practice AP Microeconomics Unit 2 with supply and demand tests covering market equilibrium, elasticity, consumer surplus, deadweight loss, price controls, and taxes.
Why Supply and Demand Is the Core of AP Microeconomics
Unit 2 is the most graph-intensive unit in AP Microeconomics and the foundation of nearly every FRQ on the exam. Whether you are analyzing a tax, a price ceiling, or a change in consumer income, you will almost always start by drawing or shifting a supply and demand diagram. Mastering this unit is non-negotiable for a strong AP performance.
Key Topics in Unit 2
The Law of Demand and Demand Shifters
Quantity demanded falls as price rises, producing a downward-sloping demand curve. The curve shifts when any non-price determinant changes, including income, prices of related goods, consumer tastes, expectations, and the number of buyers. AP questions test your ability to distinguish between a movement along the curve (a price change) and a shift of the curve (a change in a determinant).
The Law of Supply and Supply Shifters
Quantity supplied rises as price rises, producing an upward-sloping supply curve. Supply shifts in response to changes in input costs, technology, prices of related goods in production, producer expectations, and the number of sellers.
Market Equilibrium
Equilibrium is where quantity demanded equals quantity supplied. When the market is above equilibrium price, a surplus occurs and price falls. Below equilibrium, a shortage occurs and price rises. AP FRQs routinely ask you to show a new equilibrium after a specified shift in supply or demand.
Price Elasticity of Demand and Supply
Elasticity measures responsiveness. The price elasticity of demand (PED) is the percentage change in quantity demanded divided by the percentage change in price. Key interpretations include elastic demand (PED greater than 1), inelastic demand (PED less than 1), and unit elastic demand. Income elasticity and cross-price elasticity identify normal vs. inferior goods and substitutes vs. complements.
Consumer Surplus, Producer Surplus, and Deadweight Loss
Consumer surplus is the area below the demand curve and above the price. Producer surplus is the area above the supply curve and below the price. Total surplus is maximized at competitive equilibrium. Price controls and taxes reduce total surplus and create deadweight loss — the triangle of surplus lost due to reduced quantity traded.
Price Controls
A price ceiling set below equilibrium creates a shortage. A price floor set above equilibrium creates a surplus. AP questions ask you to draw these scenarios and identify the resulting deadweight loss triangles.
Taxes and Subsidies
An excise tax shifts the supply curve upward by the amount of the tax, raising equilibrium price and reducing equilibrium quantity. The tax burden is shared between buyers and sellers based on relative elasticity — the more inelastic side bears a larger share. Subsidies shift supply downward, increasing quantity and creating a deadweight loss through overproduction.
AP FRQ Graph Skills for Unit 2
- Draw a correctly labeled supply and demand diagram with price on the vertical axis and quantity on the horizontal axis.
- Shift supply or demand based on a stated change and label the new equilibrium price and quantity.
- Shade consumer surplus, producer surplus, and deadweight loss areas on the diagram.
- Show the effect of a per-unit tax by shifting supply and labeling the price paid by buyers, price received by sellers, and tax revenue rectangle.