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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.
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Full transcript