School

AP Microeconomics

Summary: People/companies want things, how to maximize

Note: In Microeconomics we learn perfect competition is best, as it’s “efficient”. However, Zero to One (Peter Thiel) is an antithesis, claiming capitalism is about CAPITAL, and that the best is a monopoly based on innovation (not government favors or bullying) which uses monopoly profits to create a greater value.

Unit 1: Basic Concepts

  • Scarcity: Wants are unlimited, resources are limited
  • Opportunity Cost: What you could’ve done/gotten
  • Production Possibilities Curve (PPC): Trade-offs, efficiency, growth.
  • Absolute Advantage: Producing more
  • Comparative Advantage: Lower opportunity cost for specific thing
  • Economic Systems: Command (government controls), market (plays control), mixed (both).
  • Profit: Economic accounts for opportunity cost accounting doesn’t

Unit 2: Supply and Demand

  • Demand influencers: Income, tastes, prices of related goods
  • Supply influencers: Input prices, technology, expectations
    • Supply/Demand are inversely (opposite) correlated
  • Equilibrium: Intersection of supply and demand.
  • Elasticity: How much change in one affects other
    • Price Elasticity (how does price move supply/demand)
    • Income and Cross-Price Elasticity (same as price but for those)
  • Government Intervention: Price floors (minimum price), price ceilings (max price), and taxes/subsidies, usually causes inefficiency

Unit 3: Production, Cost, and Perfect Competition

  • Marginal product: How much more output for input (labor can be input)
  • Diminishing Return: Eventually more brings less (like eating food)
  • If marginal cost above average, average increases, relative place is direction
  • Costs: Fixed (no matter what), variable (more produced more cost)
    • Total Cost = Fixed + Variable
  • Perfect competition: Companies enter/exit until economic profit is zero
  • MOST IMPORTANT THING: max profit when marginal cost = marginal revenue

Unit 4: Imperfect Competition

  • Monopoly: Price maker (chooses price), barriers to entry, deadweight loss.
  • Monopolistic Competition: Different products, but still compete.
  • Oligopoly: Few firms, game theory, collusion/cartels
  • Price Discrimination: Different prices for different people, bad for consumer

Unit 5: Factor Markets

  • Derived demand: More demand for output leads to more demand for input
  • Marginal Product of Labor (MPL): Contribution of each additional worker.
  • Profit Maximization: MRP = MRC, additional worker return = worker cost
  • Wage Determination: Supply and demand for labor/wages

Unit 6: Market Failure and Government

  • Externalities: Positive or negative, effect on non related people/things
  • Government solutions:
    • Helps: Deregulation, subsidies
    • Hurts: Taxes, regulation