AP Microeconomics Lecture Notes

Unit 1: Introduction to Economics

• Macroeconomics vs. Microeconomics

  • Macroeconomics: Examines the economy as a whole (government, household).
  • Microeconomics: Focuses on individual units (person, household, firm, or industry).

• Types of Economics

  • Positive Economics: Focuses on facts and cause-effect relationships, avoiding value judgments.
  • Normative Economics: Incorporates value judgments about how the economy should be.

• Economizing Problem

  • The need to make choices because economic wants exceed economic means.

• Economic Systems

  • Command System (Socialism/Communism): Government owns most property resources with central planning.
  • Market System: Private ownership with high potential monetary rewards for innovation.

• Key Concepts

  • Freedom of enterprise and choice, creative destruction, invisible hand.
  • Law of increasing opportunity cost: Opportunity cost increases with consumption.
  • Factors of Production: Land, labor, capital, entrepreneurial ability.

Distribution of Wealth

• Income Distribution

  • Functional Distribution: Wages, rents, interest, and profits.
  • Personal Distribution: Income divided into five groups.

• Key Metrics and Concepts

  • Gini Coefficient: Measures income equality.
  • Lorenz Curve: Shows income inequality.
  • Personal Income Tax: Federal, state, local.

Business Structures

• Types of Businesses
  • Sole Proprietorship, Partnership, Corporation.
  • Differences in ownership, liability, capital raising, and taxation.

Consumer and Producer Behavior

• Goods and Market Dynamics

  • Durable Good: Expected life of 3+ years.
  • Principal-agent problem, private and public goods.

• Supply and Demand

  • Law of Demand: Price increase leads to a decrease in quantity demanded.
  • Law of Supply: Price increase leads to an increase in quantity supplied.
  • Factors affecting demand: Income, number of customers, substitute/complementary goods, taste, and taxes.

Government Intervention

• Price Controls

  • Price Ceiling: Max price a seller can charge.
  • Price Floor: Minimum price fixed by government.
  • Rent Control, Subsidies.

• Elasticity

  • Price Elasticity: Responsiveness of consumers to price change.
  • Elasticity of Supply: How quantity supplied responds to change in price.

Market Structures and Competition

• Market Types

  • Perfect Competition, Monopolistic Competition, Oligopoly, Monopoly.
  • Differences in number of sellers, product type, pricing control, and market entry/exit.

• Monopoly Characteristics

  • Price Maker, Blocked Entry, Non-price Competition.

Pricing Strategies

• Price Discrimination
  • Selling the same product at different prices not justified by cost differences.
  • Conditions include monopoly power, market segregation, and no resale.

Labor Markets and Wages

• Derived Demand and Wages

  • Demand for labor connected to demand for the products they produce.
  • Marginal Revenue Product and Marginal Resource Cost.

• Union Influence

  • Main goal is to raise wage rates.
  • Different union models and negotiation strategies.

Government and Antitrust Policies

• Regulation and Competition Policies

  • Antitrust Policy: Prevent monopolization and promote competition.
  • Industrial and Social Regulation: Ratepayer benefits, deregulation effects.

• Wage and Employment Discrimination

  • Wage Discrimination and Employment Discrimination.
  • Human Capital and Noncompeting Groups.

Additional Topics Covered in Chapters

• Various Chapters (1-34)
  • Topics include economic models, policy impacts, and specific market dynamics.