AP Economics
Microeconomics Terms
Economics
Microeconomics
Macroeconomics
Scarcity
Opportunity cost
Cost benefit analysis
Marginal
Efficiency
Equity
Positive
Normative
Market economy
Traditional economy
Command economy
Circular-flow diagram
Market for Goods & Services
Production possibilities
Specialization
Comparative advantage
Absolute advantage
Imports
Exports
Demand
Law of Demand
Demand curve
Quantity demanded
Shift determinants
Diminishing marginal utility
Shift in demand vs. movement along curve
Normal good
Inferior good
Substitutes
Complements
Ceteris paribus
Supply
Law of Supply
Quantity supplied
Supply curve
Inputs
Equilibrium price/quantity
Surplus
Shortage
Shift in supply vs. movement along curve
Indeterminate change
Elasticity
Inelastic/perfectly inelastic
Elastic/perfectly elastic
Price elasticity of demand
Cross-price elasticity of demand
Elasticity of supply
Income elasticity
Price ceiling
Price floor
Tax incidence
Total surplus
Consumer surplus
Producer surplus
Marginal buyer
Tax revenue
Deadweight loss
Laffer curve
Domestic price
World price
Tariff
Quota
Externality
Negative externality
Positive externality
Internalizing costs
Private solutions
Coase theorem
Command and control policies
Pigovian tax
Tradable permits
Public good
Private good
Excludable
Rival
Natural monopoly
Common resource
Costs
Implicit
Explicit
Accounting profit
Economic profit
Total revenue
Total costs
Fixed costs
Sunk costs
Variable costs
Average costs
Marginal costs
Production function
Marginal product
Diminishing marginal product
Efficient scale
Allocative efficiency
Productive efficiency
Economies of scale
Diseconomies of scale
Constant returns to scale
Short-run average total costs
Long-run average total costs
Perfect competition
Imperfect competition
Monopoly
Oligopoly
Monopolistic competition
Barriers to entry
Homogenous good
Free entry
Perfect substitutes
Price taker
Zero economic profits
Positive profits
Negative profits
Average revenue
Marginal revenue
Profit maximization (MR = MC)
Shut down rule (P < AVC)
Exit rule (P < ATC)
Long-run equilibrium
Market power
Price maker
Patent
Copyright
Socially efficient quantity
Price effect
Output effect
Antitrust laws
Price discrimination
Perfect price discrimination
Oligopoly
Duopoly
Collusion
Cartel
Game theory
Prisoner’s dilemma
Dominant strategy
Nash equilibrium
Compete vs. cooperate
Predatory pricing
Advertising
Excess capacity
Markup
Factors market
Derived demand
Marginal product of labor (MPL)
Diminishing marginal productivity
Marginal factor cost (MFC)
Marginal revenue product (MRP)
Least Cost Rule
Profit Maximization Rule (factors market)
Monopsonist labor market
Draw the following graphs using axes below. Remember to clearly label each graph.
A. Microeconomics
1. Supply and demand for a market, showing an increase in supply and an increase in demand
2. Market with demand inelasticity and supply elasticity
3. Cost curve for a firm in a perfectly competitive market in long-term equilibrium, with market
graph on right
4. Curve showing a negative externality and the increased social cost and decreased benefit
5. Curve showing a positive externality. Show deadweight loss, MPC, MSB, MPB.
6. Consumer surplus / producer surplus
7. International supply and demand, showing world price lower than domestic price and the
effect on consumer / producer surplus
8. Binding price ceiling; binding price floor
9. Deadweight loss from tax
10. Cost curve for an individual firm—unregulated monopoly making economic profits.
11. Cost curves for monopolistically competitive firm—short-run and long-run profits
12. Supply and demand showing a leftward shift in demand and a rightward shift in supply,
long with new equilibrium P and Q
13. Perfectly Competitive market for labor, showing where MRP = MFC at the equilibrium
wage
14. Monopsony market for labor, showing the number of workers at profit maximizing capacity, and the
wage. Also show deadweight loss and amount of economic welfare transferred.
Most Important Rules to Know for the Micro AP
1. The profit maximizing output for all firms is the point at which MR = MC.
2. The allocatively efficient output is the point at which P = MC.
3. All firms PRICE their goods on the demand curve. If a firm is a price-taker, their
demand curve is flat (completely elastic). If the firm is a price-maker, it means their
demand curve is downward sloping. Monopolies and monopolistic competition are price
makers.
4. Marginal cost is the cost to produce the next unit. The MC curve passes through ATC at
the minimum of ATC. When the curve is still below ATC, average costs are falling.
When the curve is above ATC, the average costs are rising.
5. For perfect competition, the short-run supply curve for the individual firm is the MC
curve starting at average variable costs. The long run supply curve is the MC curve
starting a ATC.
6. The shut down rule happens when P < AVC. If the low price continues in the market,
eventually the firm faces an exit decision, which happens when P < ATC.
7. Perfect competition is perfect because both the allocatively efficient and productively
efficient points are also the profit maximizing point for the firm.
8. In perfect competition, the market drives the firm. Remember to draw side-by-side
graphs.
9. Know the difference between the unregulated output (profit-max) for a monopolist and
the regulated allocatively efficient output.
10. All firms will hire labor until the value of the goods produced by the last worker is equal
to the cost of that worker. The rule is MRP = MFC. (marginal revenue product =
marginal factor cost)
11. Monopolistic competition will have short-run profits but in the long run, profits are zero,
just like perfect competition. If the monopolistic competitor is willing to advertise, it can
differentiate its good, which helps retain pricing power.
12. Firms will use the combination of labor and capital that yields the most utility at the least
cost. MU labor/P of labor = MU capital / P of capital.
Ten Important Things to Understand About Cost Curves
1.
What is the relationship between fixed costs and production?
2.
Why do variable costs go up?
3.
Why & how are marginal costs related to variable costs?
4.
Why do fixed costs become sunk costs? Why is that important to
learn outside the field of economics?
5.
How does the relationship between ATC and MC work?
6.
Why do firms really only care about MC in the short run?
7.
Why are MP and MC mirror images of each other?
8.
What are economies of scale, constant returns to scale, and
diseconomies of scale? How are they related to plant size?
9.
Why does ATC fall at first and then rise?
10. When do diminishing marginal returns set in? Why is that an
important thing to understand in my life?