Supply and demand practice questions (AP Microeconomics)

Sample questions

All 5 free AP Microeconomics questions on this unit, from the free AP Microeconomics Practice Exam and the free AP Microeconomics Free-Response Practice Questions (FRQ) with Answers. Each answer is behind its own toggle; the whole paper, its PDF and the full answer key are on the exam page.

1. Question 12 marks · Elasticity & total revenue
   A cinema raises ticket prices by 5 percent and finds that the quantity of tickets sold falls by 10 percent. Total revenue and the price elasticity of demand are:
   • A.
     revenue rises; demand is elastic
   • B.
     revenue rises; demand is inelastic
   • C.
     revenue falls; demand is elastic
   • D.
     revenue falls; demand is inelastic
   • E.
     revenue is unchanged; demand is unit elastic
   Show answerFrom the free AP Microeconomics Practice Exam →
2. Question 22 marks · Normal & inferior goods
   During a recession, household incomes fall and the demand for store-brand instant noodles increases. For these consumers, instant noodles are:
   • A.
     an inferior good
   • B.
     a normal good
   • C.
     a complementary good
   • D.
     a Giffen good, because quantity demanded rose
   • E.
     a substitute good
   Show answerFrom the free AP Microeconomics Practice Exam →
3. Question 32 marks · Simultaneous shifts
   In the market for coffee, a health study increases consumer preference for coffee while a frost destroys part of the harvest. Equilibrium price and quantity will change as follows:
   • A.
     price rises; quantity rises
   • B.
     both price and quantity are indeterminate
   • C.
     price is indeterminate; quantity rises
   • D.
     price falls; quantity is indeterminate
   • E.
     price rises; quantity is indeterminate
   Show answerFrom the free AP Microeconomics Practice Exam →
4. Question 42 marks · Price floors
   A binding minimum wage set above the equilibrium wage in a competitive labor market will most likely cause:
   • A.
     a shortage of labor
   • B.
     an increase in the quantity of labor demanded
   • C.
     no change, because wages are sticky
   • D.
     a surplus of labor (unemployment)
   • E.
     a rightward shift of the labor supply curve
   Show answerFrom the free AP Microeconomics Practice Exam →
5. Question 55 marks · Elasticity & tax incidence
   Consider the market for bottled cold-brew coffee in a town. At a price of 4 dollars per bottle, 1,100 bottles are demanded per week; at a price of 6 dollars, 900 bottles are demanded, and demand is linear between these points. Before any tax, the market is in equilibrium at a price of 5 dollars and a quantity of 1,000 bottles per week. The town then imposes an excise tax of 1.50 dollars per bottle, collected from sellers. After the tax, the price consumers pay rises to 6 dollars per bottle and the quantity sold falls to 900 bottles per week.
   (a)

   Using the midpoint method, calculate the price elasticity of demand between the prices of 4 dollars and 6 dollars. Show your work.

   [1]
   (b)

   Is demand elastic, inelastic or unit elastic over this price range? Using total revenue, explain what happens to sellers' total revenue when the price rises from 4 dollars to 6 dollars.

   [1]
   (c)

   Calculate the price per bottle that sellers receive after the tax, and the amount of the tax per bottle that is paid by consumers and the amount paid by sellers. Show your work.

   [1]
   (d)

   Calculate the government's weekly tax revenue and the deadweight loss caused by the tax. Show your work.

   [1]
   (e)

   Using your answers to parts (a) and (c), explain why the larger share of the tax falls on the side of the market that it does.

   [1]
   Show answerFrom the free AP Microeconomics Free-Response Practice Questions (FRQ) with Answers →

Key terms

The definitions and formulas AP Microeconomics expects for supply and demand, typeset as they appear on the paper.

Price elasticity of demand

The percentage change in quantity demanded per one percent change in price. Elastic above 1, inelastic below 1; the AP exam accepts the midpoint method for percentage changes.

$$E_d = \frac{\%\Delta Q_d}{\%\Delta P}, \qquad \%\Delta Q = \frac{Q_2 - Q_1}{(Q_1 + Q_2)/2} \times 100$$

Total revenue test

If a price rise lowers total revenue, demand is elastic; if it raises total revenue, demand is inelastic; if revenue is unchanged, demand is unit elastic.

$$TR = P \times Q$$

Income and cross-price elasticity

Income elasticity is positive for normal goods and negative for inferior goods. Cross-price elasticity is positive for substitutes and negative for complements.

$$E_I = \frac{\%\Delta Q_d}{\%\Delta I}, \qquad E_{xy} = \frac{\%\Delta Q_x}{\%\Delta P_y}$$

Consumer and producer surplus

Consumer surplus is the area below demand and above price; producer surplus is the area above supply and below price. Their sum is maximised at the competitive equilibrium, which is allocative efficiency.

Price ceiling and price floor

A binding ceiling (below equilibrium) creates a shortage; a binding floor (above equilibrium) creates a surplus. Both reduce total surplus and create deadweight loss.

Tax incidence

How a per-unit tax splits between buyers and sellers. The side with the less elastic curve bears more of the tax, regardless of who sends the payment to the government.

Deadweight loss

The total surplus lost when a market produces less (or more) than the efficient quantity: the triangle between demand and supply from the actual quantity to the efficient one.

Frequently asked questions

Other AP Microeconomics topics

• Basic economic concepts
• Production, cost and perfect competition
• Imperfect competition
• Factor markets
• Market failure and the role of government

All AP Microeconomics topics · AP Microeconomics exam guide · All free practice exams