Section 2 Review

Key Terms Law of Demand Input Inefficient Allocation Quantity Demanded Equilibrium Wasted Resources Equilibrium Price Change in Demand Market-Clearing Price Black Market Substitutes Minimum Wage Equilibrium Quantity Complements Quantity Control/Quota Normal Good Surplus Deadweight Loss Inferior Good Shortage Law of Supply Price Controls Quantity Supplied Price Ceiling Change in Supply Price Floor

Key Graphs

Demand Curve

Supply Curve

Equilibrium

Shortage

Surplus

Price Ceiling

Price Floor

Key Mistake on Exams Mistaking Quantity Demanded for Demand >>> A change in price results in a movement along the demand curve. This is a change in quantity demanded. >>> A change in any other factor that affects demand results in a shift in the demand curve. This is a change in demand. Be aware of the same issues with Quantity Supplied and Supply!

Demand Shifters TRIBE Price of Substitute Price of Complement Incomes Tastes and Preferences Expected Future Prices Number of Consumers TRIBES Tastes and Preferences Related Goods Income Buyers Expectations

Supply Shifters IRENT Price of Inputs Price of Substitute in Production Price of Complement in Production Technology Expected Future Prices Number of Producers IRENT Input Related Goods Expectations about future prices Number of Producers Technology

AP Exam Tips Supply and Demand Graphs – draw and label EVERYTHING! Price changes quantity demanded/supplied. Non-price factors change demand/supply. Shift left is a decrease. Shift right is an increase. Equilibrium is where quantity demanded equals quantity supplied. There are no shortages or surpluses. There is no pressure on price to change. Draw the graph when answering supply and demand multiple choice questions on the exam! Always label the initial equilibrium price and quantity. Then draw the shift, then the new equilibrium price and quantity. This will help you analyze the effects of the change.