Essential graphs for AP Microeconomics
Production Possibilities Curve
A
B
G
o
o
d
W
C
D
F
X
Concepts:
• Points on the curve-efficient
• Points inside the curve-inefficient
• Points outside the curve-unattainable with
available resources
• Gains in technology or resources favoring
one good both not other.
E
Good Y
Demand and Supply
√ Market clearing equilibrium
P
S
Variations:
• Shifts in demand and supply caused by
changes in determinants
• Changes in slope caused by changes in
elasticity
•Effect of Quotas and Tariffs
Pe
D
Qe
Q
Floors and Ceilings
P
P
S
Floor
Pe
S
Pe
Ceiling
D
D
QD
Qe
QS
• Creates surplus
• Qd<Qs
Q
QS
Qe
QD
• Creates shortage
• Qd>Qs
Q
Consumer and Producer Surplus
Consumer surplus
S
P
Pe
Producer surplus
D
Qe
Effect of Taxes
Q
A tax imposed on the BUYER-demand curve moves left
• Elasticity determines whether buyer or seller bears incidence of tax
• Shaded area is amount of tax
• Connect the dots to find the triangle of deadweight or efficiency loss.
Price
buyers pay
P
Dead Weight Loss
S
Price w/o tax
Price sellers
receive
D1
D2
Q
A tax imposed on the SELLER-supply curve moves left
• Elasticity determines whether buyer or seller bears incidence of tax
• Shaded area is amount of tax
• Connect the dots to find the triangle of deadweight or efficiency loss.
Price buyers
pay
S2
Dead Weight Loss
P
S1
Price w/o tax
Price sellers
receive
D1
Q
Purely Competitive Product Market Structure
Long run equilibrium for the market and firm-price takers
Allocative and productive efficiency at P=MR=MC=min ATC
P
MC
P
S
Pe
AC
MR=D=AR=P
Pe
D
Qe
Q
Qe
Q
Variations:
• Short run profits, losses and shutdown cases caused by shifts in market demand and
supply.
Imperfectly Competitive Product Market Structure
Monopoly Market Structure
Single price monopolist-price maker
Earning economic profit
P
Natural Regulated Monopoly
Selling at Fair return ( Qfr at Pfr)
Dead
Weight
Loss
MC
P
MC
ATC
P
Pm
ATC
PFR
D
Ec
Profit
Q
PSO
D
QFR QSO
Qm
Q
MR
Q
MR
Monopolistically Competitive Market structure
Long run equilibrium where P=AC at MR=MC output
MC
P
Variations:
• Short run profits, losses and
shutdown cases caused by shifts in
market demand and supply.
ATC
PMC
D
Qmc
MR
Q
Pure Competition Resource Market Structure
Perfectly competitive Labor Market-Wage takers
Firm wage comes from market so changes in labor demand do not raise wages.
S
Wage
Rate
Wage
Rate
Wc
S=MRC
Wc
D=
∑ mrp’s
DL=mrp
Qc
Labor Market
Quantity
Quantity
qc
Individual Firm
Variations:
• Changes in market demand and supply factors can influence the firm’s wage and
number of workers hired.
Imperfectly competitive market structure-Wage makers
Quantity derived from MRC=MRP (Qm
Wage (Wm) comes from that point downward to Supply curve.
MRC
Wage
Rate
S
b
Wc
a
Wm
Qm
Externalities
No Externality
P
MRP
c
Qc
Q
Negative Externality
MPC 2
MSC
P
Pe
MSC
Pe
MSB
Qo
MSB
Q
Qo Qe
Q
Tax, direct controls, lawsuits, Coase theorem,
market for externalities
Positive Externality
P
MSC
Pe
MPC
P
MSC2
MSB 2
Pe
MSB
MPB
Qe
Qo
Subsidy to buyer
Q
Qe
Qo
Subsidy to Seller
Q