ACDC Econ Crash Course Summary

Introduction

• Instructor: Jacob Clifford
• Purpose: Quick overview for AP/college introductory microeconomics students.
• Not a comprehensive reteaching, but a preparation tool for exams.
• Encouragement to support the channel by purchasing the "Ultimate Review Pack."

Basics of Economics

Scarcity

• Unlimited wants vs. limited resources.

Opportunity Costs

• Every decision has a trade-off.

Production Possibilities Curve (PPC)

• Efficient use of resources: Points on the curve.
• Inefficient use of resources: Points inside the curve.
• Impossible production: Points outside the curve.
• Shapes:
  • Straight line (constant opportunity cost).
  • Bowed-out (increasing opportunity cost).
• Factors that shift the curve:
  • More/less resources
  • Better technology
  • Trade benefits consumption beyond PPC.

Comparative Advantage

• Specialize in goods with the lowest opportunity cost.
• Difference between absolute advantage and comparative advantage.
• Terms of trade: Beneficial exchange rates between two products.

Economic Systems and Models

Types of Economies

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

Circular Flow Model

• Interaction between:
  • Businesses (sell products, buy resources)
  • Individuals (buy products, sell resources)
  • Government
• Key terms:
  • Transfer payments
  • Subsidies
  • Factor payments

Supply and Demand

Demand

• Downward sloping curve.
• Law of Demand: Price increase -> Quantity demanded decreases.
• Influences:
  • Substitution effect
  • Income effect
  • Law of diminishing marginal utility

Supply

• Upward sloping curve.
• Law of Supply: Price increase -> Quantity supplied increases.

Market Equilibrium

• Price adjustments do not shift curves.
• Shortage: Price too low
• Surplus: Price too high

Shifts in Demand and Supply

• Four scenarios: Demand increase/decrease, Supply increase/decrease.
• Double shifts create indeterminate outcomes for either price or quantity.

Elasticity

• Demand Elasticity: Sensitive (elastic) vs. insensitive (inelastic) changes.
• Elasticity Coefficients:
  • Price Elasticity: % change in quantity/% change in price.
  • Cross-price Elasticity: For substitutes (+) and complements (-).
  • Income Elasticity: For normal (+) and inferior goods (-).
• Total Revenue Test: Relates elasticity to revenue changes.

Consumer and Producer Surplus

• Consumer Surplus: Willingness to pay vs. actual payment.
• Producer Surplus: Sale price vs. minimum acceptable price.
• Market efficiency maximizes surplus and minimizes deadweight loss.

Government Interventions

• Price Ceilings: Below equilibrium, causes shortages.
• Price Floors: Above equilibrium, causes surpluses.
• International Trade: World price effects and tariffs.
• Taxes: Supply curve shifts and impact on consumers/producers.

Cost Structures and Market Efficiency

Cost Curves

• Short run vs. long run cost differences.
• Economies of scale, constant returns, and diseconomies of scale.

Perfect Competition

• Characteristics: Many firms, identical products, price takers.
• Profit maximization: MR = MC.
• Long run equilibrium: No economic profit, only normal profit.
• Efficiency: Productive and allocative efficient.

Market Structures

Monopoly

• Characteristics: One firm, unique product, high barriers.
• Price maker: Downward sloping demand, MR < D.
• Profit maximization: MR = MC.
• Regulation: Socially optimal and fair return points.

Oligopoly

• Characteristics: Few firms, high barriers, strategic pricing.
• Game theory: Dominant strategies and Nash equilibrium.

Monopolistic Competition

• Characteristics: Product differentiation, low barriers.
• Short vs. long run outcomes: Entry reduces demand.

Resource Markets

Labor Market

• Derived demand for labor.
• Minimum wage as a price floor.
• Marginal revenue product (MRP) and marginal resource cost (MRC).
• Hiring rule: MRP = MRC.

Monopsony

• Single buyer of labor.
• MRP = MRC hiring decision, lower wages.

Least Cost Rule

• Optimal resource combination: Marginal product per cost equality.

Market Failures

Public Goods

• Non-rivalry and non-exclusion.
• Government provision due to free rider problem.

Externalities

• Negative: Additional social costs (e.g., pollution).
• Positive: Additional social benefits (e.g., education).
• Solutions: Taxes and subsidies for optimal quantity.

Income Inequality

• Lorenz Curve and Gini Coefficient.
• Tax structures: Progressive, regressive, and proportional.

Conclusion

• Encouragement: Review, practice, succeed on exams.
• Thank you and best of luck with exams.