ACDC Econ - AP Microeconomics Review

Introduction

• Lecturer: Jacob Clifford
• Purpose: Overview of key concepts in AP/college introductory microeconomics.
• Focus: Preparation for AP test or final exam.
• Additional Resource: "Ultimate Review Pack" containing practice questions and more detailed videos.

Basic Economic Concepts

Scarcity

• Unlimited wants vs. limited resources.

Opportunity Costs

• Every decision has a cost — what you give up to produce/pursue something.

Production Possibilities Curve (PPC)

• Graph showing combinations of two goods that can be produced using all resources.
• Efficient Point: On the curve.
• Inefficient Point: Inside the curve.
• Impossible Point: Outside the curve.
• Types of PPC:
  • Straight Line: Constant opportunity cost.
  • Bowed Outward: Increasing opportunity cost.

Factors Shifting the PPC

• Changes in resources (land, labor, capital) or technology.
• Trade allows consumption beyond PPC.

Comparative Advantage

• Specialization in production with lower opportunity cost.
• Absolute Advantage: Ability to produce more of a good.
• Comparative Advantage: Specialize where lower opportunity cost.
• Terms of Trade: Number of units exchanged beneficially between countries.

Economic Systems

• Free Market System (Capitalism): Focus of the class.
• Command Economy: Centralized control.
• Mixed Economy: Combination of free market and government control.

Circular Flow Model

• Interaction between businesses, individuals, and government.
• Product Market: Businesses sell products.
• Resource Market: Businesses buy resources.
• Transfer Payments: Government payments (e.g., welfare).
• Subsidies: Government financial aid to businesses.

Unit 1 Difficulty

• Difficulty Level: 3/10

Supply and Demand (Unit 2)

Demand

• Law of Demand: Price increases, quantity demanded decreases.
  • Reasons: Substitution effect, income effect, diminishing marginal utility.

Supply

• Law of Supply: Price increases, quantity supplied increases.

Equilibrium

• Intersection of supply and demand curves.
• Shortages: When price is too low.
• Surpluses: When price is too high.

Double Shifts

• When both demand and supply curves shift simultaneously.
• Indeterminate Outcome: Either price or quantity is unknown.

Elasticity

• Elastic Demand: Sensitive to price changes.
• Inelastic Demand: Insensitive to price changes.
• Elasticity Coefficient: Percentage change in quantity/price.
• Cross Price Elasticity: Positive for substitutes, negative for complements.
• Income Elasticity: Positive for normal goods, negative for inferior goods.

Total Revenue Test

• Analyzing changes in total revenue to determine elasticity.

Consumer and Producer Surplus

• Consumer Surplus: Difference between willingness to pay and actual price.
• Producer Surplus: Difference between price received and willingness to sell.

Price Controls

• Price Ceiling: Below equilibrium, causes shortages.
• Price Floor: Above equilibrium, causes surpluses.
• Deadweight Loss: Inefficiencies due to market control.

International Trade

• Tariffs: Taxes on imports, cause deadweight loss.

Taxes

• Supply Curve Shifts Left: Due to taxes.
• Tax Incidence: Who bears the burden (consumers vs. producers).

Consumer Choice

• Utility Maximization: Comparing marginal utility per dollar between products.

Unit 2 Difficulty

• Difficulty Level: 5/10

Cost Curves and Firm Theory (Unit 3)

Inputs and Outputs

• Marginal Product: Additional output per additional worker.
• Diminishing Marginal Returns: Decreasing additional output with more input.

Types of Costs

• Fixed Costs: Do not change with production level.
• Variable Costs: Change with production level.
• Total Costs: Sum of fixed and variable costs.
• Per Unit Costs: Average total cost, average variable cost, marginal cost.

Graphing Costs

• Marginal cost initially decreases due to specialization, then increases.
• Short Run vs. Long Run Costs:
  • Short Run: Some resources fixed.
  • Long Run: All resources variable.
  • Economies of Scale: Average cost decreases with increased production.

Theory of the Firm

• Perfect Competition: Many firms, identical products, price takers.
  • Profit Maximization: Produce where MR = MC.
  • Shut Down Rule: If price < AVC, shut down.

Long Run Equilibrium

• No Economic Profit: Total revenue equals total cost (including opportunity costs).

Efficiency

• Productive Efficiency: Lowest ATC.
• Allocative Efficiency: Where price equals marginal cost.

Unit 3 Difficulty

• Difficulty Level: 9/10

Market Structures (Unit 4)

Monopolies

• Characteristics: One firm, unique product, high barriers.
• Price Makers: Downward-sloping demand curve.
• Profit Maximization: MR = MC.
• Natural Monopoly: Economies of scale make single producer more efficient.
• Regulation: Government intervention (e.g., fair return pricing).

Price Discrimination

• Charging different prices to different consumers.
• Eliminates Deadweight Loss: Achieves socially optimal output.

Oligopolies

• Characteristics: Few firms, high barriers, strategic pricing.
• Game Theory: Dominant strategy, Nash equilibrium.

Monopolistic Competition

• Characteristics: Many firms, differentiated products, free entry/exit.
• Long Run Equilibrium: Zero economic profit due to entry of new firms.

Unit 4 Difficulty

• Difficulty Level: 8/10

Resource Markets (Unit 5)

Supply and Demand for Labor

• Derived Demand: Labor demand depends on demand for the product.
• Minimum Wage: Binding price floor.
• Marginal Revenue Product (MRP): Additional revenue from hiring one more worker.
• Marginal Resource Cost (MRC): Cost of hiring one more worker.

Monopsony

• Characteristics: Monopolistic buyer of labor.
• Profit Maximization: Hire where MRP = MRC, pay less than MRP.

Least Cost Rule

• Optimal Resource Allocation: MP per dollar equalized across resources.

Unit 5 Difficulty

• Difficulty Level: 6/10

Market Failures and Role of Government (Unit 6)

Public Goods

• Non-Rivalry & Non-Exclusion: Usage does not reduce availability to others.
• Government Provision: Needed due to lack of market provision.

Externalities

• Negative Externalities: Additional social costs (e.g., pollution).
• Positive Externalities: Additional social benefits (e.g., education).
• Deadweight Loss: Due to overproduction (negative) or underproduction (positive).
• Government Intervention: Taxes for negatives, subsidies for positives.

Lorenz Curve and Income Inequality

• Lorenz Curve: Actual vs. perfect income distribution.
• Gini Coefficient: Measurement of income inequality.

Tax Types

• Progressive Tax: Higher income pays higher percentage.
• Regressive Tax: Lower income pays higher percentage.
• Proportional Tax: Same percentage paid by all.

Unit 6 Difficulty

• Difficulty Level: 4/10

Conclusion

• Summary: Comprehensive review of microeconomics for AP test/final exam.
• Encouragement: Support through resources, continued practice.

These notes cover the essential topics and concepts mentioned in Jacob Clifford’s summary video on microeconomics, designed to aid in preparation for exams. Use these notes as a guide for further study and practice.