Microeconomics Graphs and Key Concepts

Introduction

• Presenter: Jacob Clifford
• Objective: Review key microeconomics graphs for final or AP exam preparation.
• Comparison: Macroeconomics has about 6 key graphs; microeconomics has many more to master.

Production Possibilities Curve (PPC)

• Definition: Shows possible production combinations of two goods.
• Key Points: Key Points:
  • Efficient Points: On the curve.
  • Inefficient Points: Inside the curve.
  • Impossible Points: Outside the curve.
  • Concept Introduced: Allocative efficiency – the socially optimal production quantity.

Supply and Demand

• Most important graph in microeconomics.
• Shows: Equilibrium, shortages, and surpluses.
• Shifts: Curves can shift and double shift.
• Details in Micro:
  • Consumer Surplus: Difference between willingness to pay and actual price.
  • Producer Surplus: Difference between actual price and seller's minimum acceptable price.
  • Total Surplus: Sum of consumer and producer surplus.
  • Deadweight Loss: Loss of allocative efficiency due to price ceilings/floors or taxes.
  • International Trade: Affect on domestic price, consumer surplus, and producer surplus.

Elasticity (Unit 2)

• Concepts: Calculation-based, not graph-based.
• Recommendation: Review videos and practice sheets for calculations.

Diminishing Marginal Returns (Unit 3)

• Graph: Total product curve showing output vs. number of workers.
  • Phases: Increasing at increasing rate, increasing at decreasing rate, then decreasing.
• Application: Concept more than a frequently drawn graph.

Cost Curves

• Four Per Unit Cost Curves: Key Points:
  • Marginal Cost (MC): Down, then up.
  • Average Total Cost (ATC): Down, hit minimum, then up.
  • Average Variable Cost (AVC): Similar to ATC but below it.
  • Average Fixed Cost (AFC): Declining asymptote.
• Focus: MC and ATC for profit or loss.

Perfect Competition

• Graph Components:
  • Market: Horizontal demand curve = marginal revenue.
  • Firm: Includes MC and ATC.
• Concepts:
  • MR = MC: Profit maximization.
  • Long-run equilibrium: No economic profit, allocatively and productively efficient.

Monopoly (Unit 4)

• Graph: Downward sloping demand and marginal revenue curves.
• Profit and Loss: Identify using ATC.
• Efficiency: Not allocatively efficient.
• Key Versions:
  • Natural Monopoly: Lower cost for a single firm.
  • Price Discriminating Monopoly: No consumer surplus, higher profit.

Monopolistic Competition

• Short Run: Similar to monopoly graph.
• Long Run: ATC is tangent to the demand curve.

Oligopoly and Game Theory

• Key Graph: Payoff matrix for dominant strategy and Nash equilibrium.

Labor and Resource Markets (Unit 5)

• Graphs: Similar to product market graphs.
• Perfectly Competitive Firm in Labor Market: Key Concepts:
  • Wage Set by Market: Horizontal supply curve = marginal resource cost.
  • MRP = MRC: Hiring decision point.
• Monopsony: Single employer sets lower wage.

Externalities (Unit 6)

• Negative Externalities: Marginal social cost > marginal private cost, leads to overproduction.
• Positive Externalities: Marginal social benefit > marginal private benefit, leads to underproduction.
• Graphs: Show deadweight loss for both types of externalities.

Conclusion

• Important: Reviewing and practicing these concepts is crucial for the exam.
• Resources: Ultimate review packet, YouTube videos.