Microeconomics Graphs for AP Economics Exam

Introduction

Presenter: Jacob Reed, reviewecon.com
Content: Comprehensive review of essential microeconomics graphs for AP exams.
Resources: Total review booklet available on reviewecon.com (includes practice sets, exams, cheat sheets, and online practice games).

Definition: Graph showing all possible combinations of production for two goods.
Example: Robots and Corn.
- Points: Max production of each good (robots or corn), points in between indicate combinations.
- Curve: PPC curve illustrates maximum production levels.
Types of PPC Curves:
- Bowed Out (Concave): Indicates increasing opportunity costs due to imperfect resource adaptability.
- Linear (Straight Line): Indicates constant opportunity costs due to perfectly adaptable resources.
Efficient vs. Inefficient:
- Points on the curve: Efficient (full resource utilization).
- Points inside the curve: Inefficient (resources idle, recessionary gap).
- Points outside the curve: Impossible due to scarcity.
Shifts in PPC:
- Outward Shift: Economic growth due to increase in resources or technology improvements for one good.
- Inward Shift: Decrease in resources (e.g., natural disaster).

Law of Demand: Consumers buy more at lower prices, less at higher prices.
Curve: Downward sloping showing inverse relationship between price and quantity demanded.
Movements vs. Shifts:
- Movement Along Curve: Due to price changes.
- Shifts in Demand Curve: Due to factors other than price (e.g., tastes, market size, income, prices of related goods, expectations).

Law of Supply: Producers supply more at higher prices, less at lower prices.
Curve: Upward sloping showing direct relationship between price and quantity supplied.
Movements vs. Shifts:
- Movement Along Curve: Due to price changes.
- Shifts in Supply Curve: Due to factors other than price (e.g., input prices, government policies, number of sellers, technology).

Assumptions: World price below equilibrium, free imports.
Effect on Market: Domestic supply decreases, demand increases, imports fill gap.
Consumer & Producer Surplus: Calculated based on new world price.
Tariffs: Shift world supply curve up, reducing imports, increasing domestic production, creating government revenue, and deadweight loss.

Total Cost Curves: Total cost, variable cost, fixed cost.
Average Cost Curves: Average total cost (ATC), average variable cost (AVC), marginal cost (MC).
Efficiency: Productive efficiency at minimum ATC.
Long Run Costs: All costs variable, economies and diseconomies of scale.

Market Characteristics: Large number of firms, price takers.
Firm's Graph: Horizontal MR=D=AR=P (Mr. Darp).
Profit Maximization: MR = MC.
Long Run: Zero economic profit (breaking even).
Efficiency: Allocatively efficient (P=MC), productively efficient in long run (min ATC).
Supply Curve: MC above AVC.

Demand Curve: Downward sloping, MR below demand.
Profit Maximization: MR = MC, higher price than competitive market.
Efficiency: Not allocatively or productively efficient, captures economies of scale.
Surplus & Deadweight Loss: Consumer surplus, producer surplus, and deadweight loss depicted graphically.
Regulation: Socially optimal price (allocatively efficient), Fair return price (normal profit).

In Production: Supply curve represents private cost, additional social cost added.
In Consumption: Demand curve represents private benefit, cost subtracted.
Government Intervention: Corrective taxes for external costs.

In Production & Consumption: Added external benefit.
Government Intervention: Subsidies to boost socially optimal consumption/production.

Purpose: Illustrates income distribution within an economy.
Components: Line of equality (45 degrees), actual Lorenz curve (bowed).
Gini Coefficient: Measure of inequality (0 = equality, 1 = inequality).
Tax Impact: Proportional tax (no shift), Progressive tax (towards equality), Regressive tax (towards inequality).

Additional Resources: Practice games and review book available on reviewecon.com.
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