AP Microeconomics Review Lecture

May 21, 2024

Review flashcards

AP Microeconomics Review Lecture by Jacob Clifford

Introduction

  • Designed for quick preparation before AP test/final exam
  • Companion to in-depth videos and Ultimate Review Pack
  • Covers key concepts and their application

Unit 1: Basic Economic Concepts

Scarcity

  • Unlimited wants, limited resources

Opportunity Costs

  • Every decision has a cost

Production Possibilities Curve (PPC)

  • Shows combinations of two goods
  • Efficient points (on curve), inefficient points (inside curve), impossible (outside curve)
  • Shapes: Straight line (constant opportunity cost), Bowed out (increasing opportunity cost)
  • Shifts due to resources, technology, trade

Comparative Advantage

  • Specialize in goods with lower opportunity costs
  • Absolute advantage vs Comparative advantage
  • Terms of Trade: mutually beneficial exchange rate

Economic Systems

  • Free Market (Capitalism)
  • Command Economy
  • Mixed Economy

Circular Flow Model

  • Businesses and individuals interaction
  • Product market vs Resource market
  • Transfer payments, subsidies, and factor payments

Unit 2: Supply and Demand

Demand

  • Downward sloping curve
  • Law of Demand: price up, quantity demanded down
  • Reasons: Substitution effect, Income effect, Diminishing marginal utility

Supply

  • Upward sloping curve
  • Law of Supply: price up, quantity supplied up

Equilibrium

  • Intersection of supply and demand curves
  • Shortage (price below eq), Surplus (price above eq)

Shifts in Curves

  • Demand increase/decrease, Supply increase/decrease
  • Double shift: indeterminate outcome for price or quantity

Elasticity

  • Price elasticity: sensitive (elastic) vs insensitive (inelastic)
  • Coefficients: demand, cross-price, income elasticity
  • Total Revenue Test

Surplus and Deadweight Loss

  • Consumer surplus, Producer surplus
  • Price controls: ceilings (below eq), floors (above eq)

International Trade

  • World price, tariffs, deadweight loss

Taxes

  • Shifting supply curve due to taxes
  • Tax incidence: consumer vs producer burden

Consumer Choice

  • Utility maximization: Marginal utility per dollar rule
  • Combination of goods to maximize total utility

Unit 3: Costs of Production and Perfect Competition

Inputs and Outputs

  • Total Product, Marginal Product
  • Law of Diminishing Marginal Returns

Costs

  • Fixed, Variable, and Total Costs
  • Average Costs: ATC, AVC, AFC, MC
  • Long Run Costs: Economies of scale, constant returns to scale, diseconomies of scale

Perfect Competition

  • Characteristics: many firms, identical products, no barriers
  • Price takers
  • Profit Maximization: MR = MC
  • Long Run Equilibrium: normal profit, no economic profit
  • Efficiency: productive and allocative

Unit 4: Imperfect Competition

Monopolies

  • One firm, unique product, high barriers
  • Price makers, downward sloping demand
  • Profit maximization, identifying profits and losses
  • Natural monopolies and regulation (socially optimal, fair return)
  • Price discrimination

Oligopolies

  • Few large firms, high barriers, strategic pricing
  • Game Theory: dominant strategy, Nash equilibrium

Monopolistic Competition

  • Many firms, differentiated products, low barriers
  • Short Run profits can lead to Long Run equilibrium with no economic profit

Unit 5: Resource Markets

Supply and Demand for Labor

  • Derived demand for labor depends on product demand
  • Effects of minimum wage: binding floor, unemployment

Marginal Revenue Product (MRP) and Marginal Resource Cost (MRC)

  • Calculations for optimal number of workers
  • Perfect competition in the resource market: hiring where MRP = MRC
  • Monopsony: single buyer in labor market, hiring less than competitive firm

Least Cost Rule

  • Comparing marginal products per dollar of different resources
  • Equating marginal product per dollar across resources for cost minimization

Unit 6: Market Failures

Public Goods

  • Characteristics: shared consumption, non-exclusion
  • Government provision needed due to non-excludability

Externalities

  • Negative: additional social costs (taxes to reduce production)
  • Positive: additional social benefits (subsidies to increase production)

Income Inequality

  • Lorenz Curve and Gini Coefficient
  • Types of Taxes: progressive, proportional, regressive

Conclusion

  • Summary of main points from different units
  • Emphasis on understanding key concepts and their applications
  • Encouragement to utilize additional resources for in-depth study