Microeconomics Graphs for AP Exam

Introduction

• Presenter: Jacob Reed from ReviewEcon.com
• Focus: Key graphs needed for AP Economics exam.
• Additional resources: Total review booklet, practice sets, and exclusive online games available on ReviewEcon.com.

Production Possibilities Curve (PPC)

• Purpose: Shows all combinations of production for two different goods or categories an economy can produce.
• Example: Economy producing robots and corn.
• Types of Curves:
  • Bowed Out (Concave): Indicates increasing opportunity costs. Resources are not perfectly adaptable.
  • Linear: Indicates constant opportunity costs. Resources are perfectly adaptable.
• Efficiency:
  • On the curve: Efficient; all resources are used to their maximum potential.
  • Inside the curve: Inefficient use of resources.
  • Outside the curve: Impossible due to scarcity.
• Shifts:
  • Outward: Increase in resources or technology (economic growth).
  • Inward: Decrease in resources.
  • Technology change affecting one good only shifts that side of the curve.

Supply and Demand

• Demand Curve:

  • Law of Demand: Inverse relationship between price and quantity demanded.
  • Downward sloping.
  • Change in price moves along the curve; changes in demand shift the curve.
  • Demand Shifters: Consumer taste, market size, prices of related goods, income, expectations.

• Supply Curve:

  • Law of Supply: Direct relationship between price and quantity supplied.
  • Upward sloping.
  • Change in price moves along the curve; changes in supply shift the curve.
  • Supply Shifters: Input prices, government tools, number of sellers, technology, expectations.

• Equilibrium:

  • Intersection of supply and demand curves.
  • Surplus: Price above equilibrium.
  • Shortage: Price below equilibrium.
  • Effects of Shifts: Changes in demand or supply affect equilibrium price and quantity.

Price Controls

• Price Floors: Minimum price set above equilibrium, causing surplus.
• Price Ceilings: Maximum price set below equilibrium, causing shortage.

Taxes

• Excise Taxes: Per unit tax shifting supply curve left, creating tax revenue and deadweight loss.

International Trade

• World Price vs Domestic Price: Affects consumer and producer surplus and imports.
• Tariffs: Tax on imports, reducing imports and changing surpluses.

Cost Curves

• Total Cost Curves: Total cost, variable cost, fixed cost.
• Average Cost Curves: Average total cost, average variable cost, marginal cost.
• Long Run Average Total Cost: Economies of scale, constant returns, diseconomies of scale.

Market Structures

• Perfect Competition: Firms are price takers, break even in long run.
• Monopoly: Single seller, price setter, not allocatively efficient.
• Monopolistic Competition: Many sellers, some market power, zero economic profit in long run.

Factor Markets

• Perfectly Competitive Factor Market: Firms are wage takers.
• Monopsony: Single buyer, hires less labor at lower wages.

Externalities

• Negative Externalities: External costs lead to overproduction.
• Positive Externalities: External benefits lead to underproduction.
• Corrective Taxes and Subsidies: Align private costs/benefits with social costs/benefits.

Lorenz Curve

• Displays income distribution.
• The closer to the line of equality, the more equal the income distribution.

Conclusion

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