AP Microeconomics Flashcards: Inequality

What this deck covers

This deck focuses on Inequality, giving you a quick way to review the definitions, rules, and examples that matter most for AP Microeconomics.

How to use these flashcards

Work through these flashcards in short sessions. Try to answer each prompt before flipping the card, then revisit any cards you miss until the explanation feels automatic.

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

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

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

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

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

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

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

Answer: Inelastic. $0.6 < 1$ satisfies inelastic condition.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Answer: Complements. Negative cross-price elasticity indicates complementary goods.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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