AP Microeconomics Ultimate Guide

in general is a study of how an entity, whether it be an individual or an organization, manages and allocates its resources in the most efficient way possible.

states however that our needs our unlimited and as mentioned earlier, the resources available are scarce.

unlimited wants, limited resources (example : land)

filters our scope to individuals in an economy while keeping the overall economy in mind.

we consider the big picture- the nation’s economy as a whole.

natural resources and raw material. Ex: water, oil, minerals and such.

physical labor, skills, and effort devoted into a task where workers are paid.

is usually referred to as the liquid asset, or monetary value

• : the ability of an individual to coordinate the other categories of resources to produce a good or service

The alternative choice which must be given up in order to make a decision. The goods and services which you do not choose are the trade-offs.

• This is the cost we forgo or sacrifice, to opt for another choice. The next best alternative if your first choice is unavailable.

this approach to economics is based on facts and figures.

The economy has to decide what goods and services the society needs in order to properly allocate resources.

• This deals with how businesses will go about producing these goods and services.

This question decides who will be able to consume these goods and services, to where these resources where will be allocated.

a sustained rise in aggregate output and an increase in standard of living (causes are developments in technology, or an increase in resources)

lowest cost possible on the PPC

the economy allocates resources so consumers are well off as possible, producing what is demanded

Occurs when OC stays the same as the production of a good increases.

When one good is produced more, you give up more of another good.

Occurs when a firm as the ability to produce a specific amount of goods or services in comparison to the others.

The ability of a firm to produce a good or service at the lowest possible cost

people split up the work, and provide each other with a good in return for another. It is also the rate at which one good can be exchanged for another

monetary or non-monetary opportunity costs in terms of making a choice.

traditional out of pocket costs which are associated with choosing one course of action.

the measure of personal satisfaction (util is a unit of utility)

the change in total utility by consumer one additional unit of that good/service

additional units of a good/service add less total utility than the previous units do

the quantity which a consumer/buyer are willing and able to buy at different prices

As price increases, demand decreases, and as price decreases, demand increases

goods/services that are consumed together (ex. hamburgers and buns)

as income increases, people will buy more of normal goods, and less of inferior goods

increase in demand when consumer’s income increases (ex. oreos)

increase in demand when consumer’s income decreases (ex. off brand oreos)

As more units of a product are consumed, the satisfaction/utility it provides tends to decline

different quantities of goods/services which sellers are willing and able to produce at a given price

as price increases, quantity supplied also increases, this is a direct relation.

how much the Q is affected by P.

means that the goods are subject to be affected by a change in price.

means that goods are not subject to be affected by a change in price.

measures how sensitive are sellers to price changes on good

Difficult production, high costs, hard to change to alternative, high barriers to entry, <1

Easy production, low cost, easy to switch to, low barriers to entry, >1

occurs when no one is better off doing something else

price consumers are willing to pay - actual price

actual price -price the producer is willing to sell for

either price or quantity will be unknown. This rule states that when there is a simultaneous shift in both demand and supply, either price or quantity would stay indeterminate

: transactions that should occur, but don’t because of government intervention (calculate the area = triangle formula, ½(base x height)

minimum price a supplier can charge, price is set above equilibrium (causes shortage)

maximum price a supplier can charge, price is set below equilibrium (causes surplus)

upper limit of a quantity that can be bought or sold (known as quantity control)

• the price at which consumers will demand that quantity

the price at which producers will supply that quantity

difference between demand price and supply price

tax placed on a good that is imported or exported

restriction on the quantity of a good that can be imported

relation between the quantity of inputs a firm uses and the quantity of output it produces.

goods that are used to produce goods/services

: an input whose quantity doesn’t change

: an input whose quantity can change

: LRATC declines as output increases

LRATC increaess as output increases

output increase directly in proportion to an increase in all inputs (ex. input doubles, output also doubles)

additional revenue gained by producing one more unit

• for a firm is where it aims to increase revenue due to costs possibly being high as well.

• a firm should not produce unless it can cover its variable costs. If it is not able to do so, firms are better off producing nothing. However, this only tends to happen in perfect competition)

• who are firms which cannot charge a higher price than the equilibrium price. This means that they have no market power.

market structure where there is only one firm producing a product

due to them producing at MR=MC

because they don’t produce at the minimum of the ATC

• has large fixed costs, and long economies of scale, has downward sloping ATC curve

occurs in specific industries as consumers pay a different price for the same good.

charging consumers different prices based on the buyer’s willingness to pay

charges all consumers the maximum they are willing to pay, no deadweight loss, produce at P=MC

is another term for imperfect competition, and occurs when many companies offer competing products which are similar but not perfect substitutes.

Small number of firms, standard or differentiated product

represents the payoff to each player to show combinations of given strategies

the demand from a resource is derived by product demand

• : the additional revenue that is generated by an additional resource/worker

standard supply and demand curve

Many sellers, one buyer

when external cost/benefit is placed on members of society who did not pay for them

: when someone uses a product, it decreases the benefit of others (ex. smoking), MSC > MPC (correct with per unit tax)

when one uses a product, others benefit  (ex. education) MSC < MPC (correct with subsidy)

if someone consumers a product, others cannot

non payers can be prevented from enjoying the benefits

underproduced due to freeloader problem

people can enjoy the benefit of a good/service without paying

gives benefit no matter how many units

works like taxes, they ensure competition/environmental protection/health and safety

promote competition and prevents monopolies

: measures % of income that goes to individuals in different percentiles/brackets

• measures the distribution of income equality  (you want to be as close of possible to the perfect equality line as possible)

everyone pays the same percentage of their income (no impact on income distribution)

taxes are higher % on people earning a higher income (reduces income inequality)