Demand - AP Microeconomics

1. What is the formula for calculating percentage change?

   $\frac{\text{New Value} - \text{Old Value}}{\text{Old Value}} \times 100$. Standard formula for elasticity calculations.

2. What does a negative income elasticity indicate?

   The good is an inferior good. Demand decreases as income rises.

3. What does a positive cross-price elasticity indicate?

   The goods are substitutes. Price increases in one good boost demand for the other.

4. What is the law of demand?

   As price decreases, quantity demanded increases. This fundamental relationship reflects diminishing marginal utility.

5. What does a positive income elasticity indicate?

   The good is a normal good. Demand increases as income rises.

6. Define income elasticity of demand.

   Measures how quantity demanded changes in response to income changes. Shows whether goods are normal or inferior.

7. What is the elasticity of demand for a necessity with few substitutes?

   Inelastic. Essential goods with few alternatives have low elasticity.

8. What is the effect of an advertising campaign on demand?

   It can increase demand. Advertising influences consumer preferences and awareness.

9. How is consumer surplus represented on a demand curve graph?

   The area above the price line and below the demand curve. Represents consumer benefit from market participation.

10. Define quantity demanded.

    The amount of a good consumers are willing to buy at a specific price. This is demand at a single price point, not the entire curve.

11. What is cross-price elasticity of demand?

    Measures how the quantity demanded of one good responds to a price change of another good. Also called cross-price elasticity coefficient.

12. How does time affect elasticity of demand?

    Demand becomes more elastic over time. Consumers find more substitutes over longer periods.

13. Identify the effect of a population increase on market demand.

    Market demand increases. More consumers in the market increase total demand.

14. How does the availability of substitutes affect demand elasticity?

    More substitutes increase elasticity. More alternatives make consumers price-sensitive.

15. How does a change in consumer taste affect demand?

    The demand curve shifts. Preference changes alter willingness to buy.

16. What is the slope of a perfectly elastic demand curve?

    Horizontal slope. Consumers extremely sensitive to price changes.

17. How does an increase in income affect demand for a normal good?

    Demand increases. Higher income allows more consumption of desired goods.

18. What is a demand schedule?

    A table showing the relationship between price and quantity demanded. Shows price-quantity pairs in tabular format before graphing.

19. What is the difference between a change in demand and a change in quantity demanded?

    Change in demand shifts the curve; change in quantity demanded moves along the curve. Shifts involve non-price factors; movements involve price changes.

20. Identify the type of elasticity when $E_d = 1$.

    Unitary elastic. Quantity changes proportionally equal to price.

21. What happens to total revenue when price rises and demand is elastic?

    Total revenue decreases. Large quantity decrease outweighs the price increase.

22. What does the midpoint method calculate?

    Elasticity without using initial values as base. Uses average of start and end values as base.

23. How does a change in consumer expectations of income affect demand?

    Expectation of higher income increases demand. Future income optimism encourages current spending.

24. What does a steep demand curve indicate about elasticity?

    Demand is inelastic. Steep curves show low price sensitivity.

25. Identify the effect of a tax on consumer goods.

    Decreases demand for the taxed good. Higher prices discourage consumption through tax burden.

26. What is the formula for price elasticity of demand?

    $E_d = \frac{\%\Delta Q_d}{\%\Delta P}$. Measures responsiveness of quantity to price changes.

27. What does a negative cross-price elasticity indicate?

    The goods are complements. Price increases in one good reduce demand for the other.

28. Describe the shape of a typical demand curve.

    Downward sloping from left to right. Reflects the inverse price-quantity relationship of demand.

29. If the price elasticity of demand is greater than 1, demand is considered what?

    Elastic. Quantity changes proportionally more than price.

30. How does an increase in income affect demand for an inferior good?

    Demand decreases. Higher income leads to substitution away from lower-quality goods.

31. Identify the effect of a complement's price increase on demand.

    Demand for the good decreases. Higher complement prices make the bundle more expensive.

32. What does a movement along the demand curve indicate?

    Change in quantity demanded due to price change. Price is the only factor changing, not demand determinants.

33. How does consumer expectation of future price affect current demand?

    Expectation of a price increase raises current demand. Consumers buy now to avoid higher future prices.

34. What is the slope of a perfectly inelastic demand curve?

    Vertical slope. Quantity demanded doesn't change with price.

35. Identify the effect of a substitute's price increase on demand.

    Demand for the good increases. Consumers switch to the now relatively cheaper good.

36. What factors shift the demand curve?

    Income, tastes, prices of related goods, expectations, number of buyers. These are non-price determinants that cause entire curve shifts.

37. What happens to demand when a subsidy is introduced?

    Demand typically increases. Lower effective prices make goods more affordable.

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