Microeconomics Study Guide for AP Exams

May 26, 2025

AP/College Introductory Microeconomics Summary

Introduction

  • Lecture by Jacob Clifford for ACDC Econ.
  • Summary of key concepts for AP or introductory microeconomics.
  • Designed to help with exam preparation.

Unit 1: Fundamentals of Economics

  • Scarcity: Unlimited wants vs. limited resources.
  • Opportunity Cost: Every decision has a cost.
  • Production Possibilities Curve (PPC):
    • Shows combinations of two goods using all resources.
    • Efficient, inefficient, and impossible points.
    • Shapes: Straight line (constant opportunity cost) and bowed out (increasing opportunity cost).
    • Shifts due to resources, technology, and trade.
  • Comparative Advantage:
    • Specialization and trade based on lower opportunity cost.
    • Difference between absolute and comparative advantage.
    • Terms of trade.
  • Economic Systems:
    • Free market, command economy, mixed economy.
    • Circular flow model: Businesses, individuals, government interactions.
  • Key Vocabulary:
    • Transfer payments, subsidies, factor payments.
  • Difficulty Level: 3/10.

Unit 2: Supply and Demand

  • Demand and Supply:
    • Law of Demand: Price ↑, Quantity Demanded ↓.
    • Law of Supply: Price ↑, Quantity Supplied ↑.
    • Equilibrium: Intersection of supply and demand curves.
    • Price changes move along the curve, do not shift it.
    • Shifts: Demand/Supply up or down.
    • Double Shifts: Indeterminacy in price or quantity.
  • Substitutes and Complements:
    • Effect of price changes on related goods.
    • Normal vs. Inferior goods.
  • Elasticity:
    • Elastic (sensitive to price change) vs. Inelastic (insensitive).
    • Elasticity coefficients for demand, cross-price, and income.
    • Total Revenue Test for Elasticity.
  • Consumer and Producer Surplus:
    • Surpluses and dead weight loss in competitive markets.
  • Price Controls:
    • Ceilings (below equilibrium) and floors (above equilibrium).
    • Impact on consumer/producer surplus and dead weight loss.
  • International Trade:
    • Impact of world prices, tariffs on surplus and market.
  • Taxes:
    • Impact of per unit taxes on supply, tax revenue distribution, elasticity.
  • Consumer Choice:
    • Maximizing utility based on price and satisfaction.
  • Difficulty Level: 5/10.

Unit 3: Costs and Perfect Competition

  • Cost Concepts:
    • Inputs and outputs, diminishing marginal returns.
    • Types of costs: Fixed, variable, total, average.
    • Marginal Cost curve and its relation to other cost curves.
  • Short Run vs. Long Run:
    • Short run: Fixed resources.
    • Long run: All resources variable, economies of scale.
  • Theory of the Firm:
    • Perfect competition market structures.
    • Demand and Revenue curves (Mr. DARP).
    • Calculating and identifying profit and losses.
  • Shut Down Rule:
    • Price < AVC, firm should shut down.
  • Efficiency:
    • Productive and allocative efficiency in perfect competition.
  • Difficulty Level: 9/10.

Unit 4: Market Structures

  • Monopoly:
    • Single seller, high barriers, unique product.
    • Demand and marginal revenue curves.
    • Price discrimination: Different prices for different customers.
    • Government regulation and natural monopolies.
  • Oligopoly:
    • Few firms, strategic pricing.
    • Game theory and Nash equilibrium.
  • Monopolistic Competition:
    • Many sellers, differentiated products.
    • Short run profits/losses and long run equilibrium.
  • Difficulty Level: 8/10.

Unit 5: Resource Markets

  • Labor Markets:
    • Derived demand, minimum wage effects.
  • Marginal Revenue Product (MRP) and Marginal Resource Cost (MRC):
    • Calculation for hiring decisions.
  • Monopsony:
    • Single buyer in labor market.
  • Least Cost Rule:
    • Maximizing output per dollar spent on labor vs. capital.
  • Difficulty Level: 6/10.

Unit 6: Market Failures

  • Public Goods:
    • Non-rivalry and non-exclusion.
  • Externalities:
    • Negative: Additional costs not borne by producer.
    • Positive: Additional benefits not captured by market.
    • Dead weight loss and socially optimal quantities.
  • Income Inequality:
    • Lorenz curve and Gini coefficient.
  • Types of Taxes:
    • Progressive, regressive, proportional.
  • Difficulty Level: 4/10.

Conclusion

  • Encouragement for exam preparation and success.
  • Reminder to support ACDC Econ channel if possible.