Inequality - AP Microeconomics

1. Identify the market outcome if $P^* = 10$ and the actual price is $P = 12$.

   Surplus. $P = 12 > P^* = 10$ creates excess supply.

2. What inequality must hold for a firm to produce in the short run at price $P$?

   Produce if $P ge AVC$. Firm covers variable costs and contributes to fixed costs.

3. What inequality indicates complements using cross-price elasticity $E_{xy}$?

   Complements if $E_{xy} < 0$. Price increase in one good reduces demand for the other.

4. Identify demand elasticity type if $|E_d| = 0.6$.

   Inelastic. $0.6 < 1$ satisfies inelastic condition.

5. What inequality indicates substitutes using cross-price elasticity $E_{xy}$?

   Substitutes if $E_{xy} > 0$. Price increase in one good raises demand for the other.

6. Identify whether a price floor is binding if $P^* = 20$ and $P_f = 18$.

   Not binding. $P_f = 18 < P^* = 20$ fails binding condition for floors.

7. What inequality defines unit elastic demand using elasticity magnitude $|E_d|$?

   Unit elastic if $|E_d| = 1$. Quantity changes exactly proportionally to price changes.

8. What does the inequality $P > P^*$ indicate in a market with equilibrium price $P^*$?

   A surplus (quantity supplied exceeds quantity demanded). Price above equilibrium reduces quantity demanded and increases quantity supplied.

9. What inequality defines price inelastic demand using elasticity magnitude $|E_d|$?

   Inelastic if $|E_d| < 1$. Quantity responds less than proportionally to price changes.

10. In perfect competition, which inequality indicates an economic loss when producing where $P = MR$?

    Loss if $P < ATC$. Price below average total cost means negative economic profit.

11. What inequality indicates an inferior good using income elasticity $E_y$?

    Inferior good if $E_y < 0$. Demand decreases when income rises.

12. What inequality indicates overproduction relative to the efficient quantity $Q_e$ when $SMC > PMC$?

    $Q_m > Q_e$. Markets overproduce goods with negative externalities.

13. What inequality indicates a normal good using income elasticity $E_y$?

    Normal good if $E_y > 0$. Demand increases when income rises.

14. Identify the market outcome if $P^* = 10$ and the actual price is $P = 8$.

    Shortage. $P = 8 < P^* = 10$ creates excess demand.

15. What inequality must hold for a firm to shut down in the short run at price $P$?

    Shut down if $P < AVC$. Firm can't cover variable costs, so it minimizes losses by shutting down.

16. What condition must hold for a price floor to be binding: $P_f$ vs. $P^*$?

    Binding if $P_f > P^*$. Floor only constrains market if set above equilibrium price.

17. What does the inequality $P < P^*$ indicate in a market with equilibrium price $P^*$?

    A shortage (quantity demanded exceeds quantity supplied). Price below equilibrium increases quantity demanded and reduces quantity supplied.

18. Identify the relationship if cross-price elasticity is $E_{xy} = -0.4$.

    Complements. Negative cross-price elasticity indicates complementary goods.

19. Which inequality defines a binding price ceiling in terms of equilibrium price $P^*$?

    Binding if $P_c < P^*$. A ceiling below equilibrium price prevents the market from reaching equilibrium.

20. What does the inequality $P > P^*$ imply about a market outcome relative to equilibrium?

    Surplus: $Q_s > Q_d$. When price exceeds equilibrium, quantity supplied exceeds quantity demanded.

21. Which inequality defines a nonbinding price floor in terms of equilibrium price $P^*$?

    Nonbinding if $P_f le P^*$. A floor at or below equilibrium doesn't affect market outcomes.

22. Identify whether a price ceiling is binding if $P^* = 20$ and $P_c = 18$.

    Binding. $P_c = 18 < P^* = 20$ meets binding condition.

23. What inequality must hold for a per-unit tax of $t$ to create a wedge between buyers and sellers?

    $P_b - P_s = t$ with $t > 0$. Tax creates a positive wedge between buyer and seller prices.

24. In perfect competition, which inequality indicates economic profit when producing where $P = MR$?

    Profit if $P > ATC$. Price exceeds average total cost, generating positive economic profit.

25. Which inequality defines a binding price floor in terms of equilibrium price $P^*$?

    Binding if $P_f > P^*$. A floor above equilibrium price prevents the market from clearing.

26. What inequality indicates underproduction relative to the efficient quantity $Q_e$ when $SMB > PMB$?

    $Q_m < Q_e$. Markets underproduce goods with positive externalities.

27. Which inequality defines a nonbinding price ceiling in terms of equilibrium price $P^*$?

    Nonbinding if $P_c ge P^*$. A ceiling at or above equilibrium doesn't constrain the market.

28. Identify the inequality that must hold for demand to be price inelastic at a point.

    $|E_d| < 1$. Percentage change in quantity is less than percentage change in price.

29. What inequality defines price elastic demand using elasticity magnitude $|E_d|$?

    Elastic if $|E_d| > 1$. Quantity responds more than proportionally to price changes.

30. In a tax wedge, which inequality holds between the price buyers pay $P_b$ and sellers receive $P_s$?

    $P_b > P_s$. Tax makes buyers pay more than sellers receive.

31. What inequality indicates a negative externality where the social marginal cost exceeds private marginal cost?

    $SMC > PMC$. Production imposes costs on society beyond private costs.

32. What inequality indicates a positive externality where the social marginal benefit exceeds private marginal benefit?

    $SMB > PMB$. Society values the good more than private buyers do.

33. Which inequality defines a binding quota when the equilibrium quantity is $Q^*$?

    Binding if $Q_q < Q^*$. Quota restricts quantity below free-market equilibrium level.

34. For a per-unit subsidy of $s$, which inequality holds between $P_s$ received and $P_b$ paid?

    $P_s > P_b$. Subsidy makes sellers receive more than buyers pay.

35. What condition must hold for a price ceiling to be binding: $P_c$ vs. $P^*$?

    Binding if $P_c < P^*$. Ceiling only constrains market if set below equilibrium price.

36. What does the inequality $P < P^*$ imply about a market outcome relative to equilibrium?

    Shortage: $Q_d > Q_s$. When price is below equilibrium, quantity demanded exceeds quantity supplied.

37. Identify the inequality that must hold for demand to be price elastic at a point.

    $|E_d| > 1$. Percentage change in quantity exceeds percentage change in price.

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