Microeconomics Lecture Summary by Jacob Clifford

Introduction

Purpose: Overview of key concepts for AP/college introductory microeconomics.
Format: Fast-paced summary, not a comprehensive reteach.
Ultimate Review Pack: Available for purchase; includes practice questions and hidden videos.

Scarcity: Unlimited wants vs. limited resources.
Opportunity Cost: Cost of any decision - you give up something to gain something else.
Production Possibilities Curve (PPC):
- Shows combinations of two goods produced with limited resources.
- Points on the curve = efficient, inside = inefficient, outside = impossible.
- Shapes: Straight line = constant opportunity cost; concave = increasing opportunity cost.
- Shifts in PPC due to changes in resources or technology.
Comparative Advantage: Countries should specialize in products with lower opportunity costs.
Economic Systems Overview: Free market, capitalism, command economy, mixed economy.
Circular Flow Model: Interaction between businesses, individuals, and government.
- Key terms: Transfer payments, subsidies, factor payments.

Demand: Downward sloping curve; influenced by substitution effect, income effect, diminishing marginal utility.
Supply: Upward sloping curve; influenced by price changes.
Equilibrium: Price where quantity demanded equals quantity supplied.
- Shift rules: Demand can increase/decrease or supply can increase/decrease.
- Double Shift Rule: If both curves shift, one outcome is indeterminate.
Elasticity:
- Elastic Demand: Sensitive to price changes; coefficient >1.
- Inelastic Demand: Less sensitive to price changes; coefficient <1.
- Cross-Price Elasticity: Determines substitutes vs. complements.
- Income Elasticity: Determines normal vs. inferior goods.
- Total Revenue Test: Applies to demand elasticity.
Consumer and Producer Surplus: Areas on supply-demand graphs; efficient markets maximize both.
Price Ceilings and Floors: Government controls that impact market equilibrium and can create deadweight loss.

Cost Curves: Fixed, variable, and total costs; average total cost (ATC), average variable cost (AVC), marginal cost (MC).
Short-run vs. Long-run Cost Curves:
- Short-run: Some fixed resources; diminishing marginal returns.
- Long-run: All resources variable; economies of scale vs. diseconomies of scale.
Perfect Competition:
- Price takers, many firms, identical products.
- MR = MC rule for maximizing profit.
- Long-run Equilibrium: Total revenue = total cost; no economic profit; positive accounting profit.
Efficiency: Productive and allocative efficiency in perfect competition.

Monopolies: One firm, unique product, high barriers; MR < demand curve.
- Natural Monopoly: Efficient for one firm to produce.
- Government regulation: socially optimal output vs. fair return.
Oligopolies: Few firms, high barriers; strategic pricing.
- Game Theory: Dominant strategy and Nash equilibrium concepts.
Monopolistic Competition: Similar to monopoly; firms can enter/exit; profit in the short run, losses in the long run.

Derived Demand: Demand for labor based on the demand for products.
Labor Markets: Demand by firms and supply by individuals; minimum wage as a binding floor.
MRP and MRC: Marginal revenue product vs. marginal resource cost; hire where MRP = MRC.
Monopsony: Single buyer in the labor market.
Least Cost Rule: Optimal combination of inputs based on marginal product per dollar.

Public Goods: Non-rivalry and non-exclusion justify government provision.
Externalities: Costs/benefits affecting third parties.
- Negative Externalities: Additional costs; results in deadweight loss.
- Positive Externalities: Additional benefits; leads to underproduction.
Income Inequality: Lorenz curve and Gini coefficient.
Types of Taxes: Progressive (rich pay more), regressive (poor pay more), proportional (same percentage).