AP Microeconomics Review Summary

Introduction

• Quick review of major concepts for AP Microeconomics.
• Suggested resources for in-depth review: AP Microeconomics Unit Review Summaries and Total Review Booklet from ReviewEcon.com.

Unit 1: Basic Concepts

Scarcity

• Limited resources cannot satisfy all wants.
• Scarce items have a positive price; acquisition requires giving up something else.

Factors of Production

• Land, labor, capital, and entrepreneurship.

Economic Systems

• Market-based economies: Emphasize private property rights, use prices to allocate resources.
• Command economies: Government allocates resources.

Opportunity Cost

• Value of the next best alternative not chosen.

Production Possibilities Curve (PPC)

• Shows combinations of two goods with fixed resources.
• Linear PPC: Constant opportunity costs.
• Bowed-out PPC: Increasing opportunity costs.

Economic Growth

• Outward shift in PPC due to increased resource quality/quantity.

Absolute and Comparative Advantage

• Absolute Advantage: More production with fewer resources.
• Comparative Advantage: Lower opportunity cost in production.

Unit 2: Supply and Demand

Law of Demand

• Consumers buy more at lower prices.
• Demand curve is downward sloping.

Demand Shifters

• Tastes, market size, related goods’ prices, income changes, future expectations.

Law of Supply

• Direct relationship between price and quantity supplied.

Supply Shifters

• Input prices, government tools, number of sellers, technology, future expectations.

Price Elasticity

• Inelastic Demand: Necessities, few substitutes, steep demand curve.
• Elastic Demand: Luxuries, many substitutes, flat demand curve.
• Total Revenue Test determines elasticity.

Equilibrium

• Where quantity demanded equals quantity supplied.
• Surplus leads to price decrease; shortage leads to price increase.

Surplus and Deadweight Loss

• Consumer and producer surplus, allocative efficiency.
• Deadweight loss when not at equilibrium.

Costs and Competition

Diminishing Marginal Returns

• Output increases at a decreasing rate with more input.

Short Run Costs

• Fixed and variable costs define total costs.
• Average and marginal costs curve relationships.

Long Run Costs

• All costs are variable.
• Economies of scale, diseconomies of scale.

Profit Types

• Accounting Profit: Total revenue minus explicit costs.
• Economic Profit: Revenue minus explicit and implicit costs.

Perfect Competition

• Many firms, identical products, no long-term economic profits.

Imperfect Competition

• Monopolies, oligopolies, monopolistic competition.

Monopolies

Characteristics

• One seller, high entry barriers, unique product.

Graph Analysis

• Economic profits possible due to entry barriers.

Oligopolies

Game Theory

• Interdependent strategic behavior.
• Payoff matrix and collusion.

Factor Markets

Key Factors

• Land (rent), labor (wages), capital (interest).

Labor Demand

• Marginal revenue product drives demand.

Supply of Labor

• Households supply labor based on wage levels.

Market Failures

Allocative Efficiency

• Achieved when marginal social benefit equals marginal social cost.

Externalities

• Positive and negative spillover effects.

Government Intervention

• Taxes/subsidies correct externalities.

Types of Goods

• Rival/non-rival, excludable/non-excludable.

Taxes

• Regressive, progressive, proportional based on income impact.

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• Comprehensive coverage of main economics concepts for exam preparation.
• Suggested further resources and practice materials at ReviewEcon.com.