AP Microeconomics
College Board Advanced Placement Microeconomics covering all six CED units: basic economic concepts, supply and demand, production and the perfect competition model, imperfect competition, factor markets, and market failure with government intervention. Includes elasticity calculations, cost curves, monopoly pricing, game theory, and modern labor market context.
Ämne: Ekonomi · Nivå: Gymnasium (16–19) · 418 kort
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- Scarcity is the fundamental economic problem: human wants are unlimited but resources are limited. Every economic decision involves trade-offs.
- Opportunity cost is the value of the next-best alternative given up when making a choice. It applies to every decision, not just monetary ones.
- The four factors of production are land (natural resources), labor (human effort), capital (machines/tools/buildings), and entrepreneurship (risk-taking and organizing).
- The three fundamental economic questions every society must answer: what to produce, how to produce it, and for whom to produce.
- A production possibilities curve (PPC) shows the maximum combinations of two goods an economy can produce when resources are fully and efficiently employed.
- Points on the PPC are productively efficient. Points inside the PPC indicate unemployment or inefficiency. Points outside are unattainable with current resources and technology.
- A bowed-outward PPC reflects increasing opportunity costs: resources are not equally suited to producing both goods, so each additional unit of one good costs more of the other.
- A linear (straight-line) PPC reflects constant opportunity costs: resources are equally productive in both goods, so the trade-off ratio stays the same along the curve.
- The PPC shifts outward with economic growth: more resources, better technology, improved labor productivity, or a larger workforce all expand production possibilities.
- Absolute advantage: a producer can make more of a good using the same resources, or the same amount using fewer resources, than another producer.
- Comparative advantage: a producer has a lower opportunity cost in producing a good than another producer. Comparative advantage — not absolute advantage — determines who should specialize.
- Specialization and trade based on comparative advantage allow total output to exceed what each producer could achieve alone. Both parties gain when terms of trade lie between their opportunity costs.
- Terms of trade are the rate at which two parties exchange goods. Mutually beneficial trade requires terms between each party's domestic opportunity costs.
- Marginal analysis: rational decision-makers compare marginal benefit (MB) with marginal cost (MC). They take an action whenever MB ≥ MC and stop when MB = MC.
- Positive economics describes what is — testable claims about the world. Normative economics prescribes what ought to be — value judgments about policy.
- Microeconomics studies individual decision-making units: households, firms, and specific markets. Macroeconomics studies the economy as a whole — GDP, inflation, unemployment.
- An economic model is a simplified representation of reality used to predict behavior. All models rest on assumptions — typically including rational decision-making and ceteris paribus.
- Ceteris paribus is the assumption that all other variables remain constant when analyzing a change in one variable. It isolates cause and effect in economic models.
- Allocative efficiency: producing the mix of goods society most values, where price equals marginal cost. Productive efficiency: producing each unit at lowest possible cost.
- The circular flow model shows how money, goods, and resources flow between households and firms through product markets (firms sell, households buy) and factor markets (households sell labor/capital, firms buy).
- Sunk costs are past expenses that cannot be recovered. Rational decision-makers ignore sunk costs and focus only on future marginal costs and benefits.
- The law of demand: as the price of a good rises, the quantity demanded falls, ceteris paribus. The demand curve slopes downward.
- Two reasons demand slopes downward: the substitution effect (consumers switch to cheaper alternatives) and the income effect (real purchasing power changes as price changes).
- A change in price causes a movement along the demand curve (change in quantity demanded). A change in a non-price determinant shifts the entire demand curve (change in demand).
- Determinants of demand (TRIBE): Tastes/preferences, Related goods prices, Income, Buyers/number of consumers, Expectations of future price.
- Normal goods: demand rises when income rises (most goods, e.g., restaurant meals). Inferior goods: demand falls when income rises (ramen noodles, used clothing).
- Substitute goods: when the price of one rises, demand for the other rises (Coke and Pepsi). Complement goods: when the price of one rises, demand for the other falls (cars and gasoline).
- The law of supply: as the price of a good rises, the quantity supplied rises, ceteris paribus. The supply curve slopes upward.
- Determinants of supply (ROTTEN): Resource/input prices, Other goods’ prices (alternative production), Technology, Taxes/subsidies, Expectations, Number of sellers.
- Market equilibrium occurs where quantity demanded equals quantity supplied (Qd = Qs). The equilibrium price clears the market — no surplus, no shortage.
- A surplus exists when price is above equilibrium (Qs > Qd), pressuring price down. A shortage exists when price is below equilibrium (Qd > Qs), pressuring price up.
- Demand increase: equilibrium price and quantity both rise. Demand decrease: both fall. Supply increase: price falls, quantity rises. Supply decrease: price rises, quantity falls.
- When both supply and demand shift in the same direction, the equilibrium quantity moves clearly but the price change is indeterminate without knowing the relative magnitudes of the shifts.
- Consumer surplus is the area below the demand curve and above the price — the difference between what consumers were willing to pay and what they actually paid.
- Producer surplus is the area above the supply curve and below the price — the difference between what producers received and the minimum they would accept.
- Total surplus (consumer + producer surplus) is maximized at the competitive equilibrium. Any deviation from equilibrium creates deadweight loss.
- Deadweight loss (DWL) is the reduction in total surplus that occurs when market output is not at the efficient quantity — typically caused by taxes, price controls, or market power.
- A price ceiling is a legal maximum price (e.g., rent control). Binding ceilings sit below equilibrium and create persistent shortages, black markets, and DWL.
- A price floor is a legal minimum price (e.g., minimum wage, agricultural price supports). Binding floors sit above equilibrium and create persistent surpluses and DWL.
- A non-binding price control has no effect: a ceiling above equilibrium or a floor below equilibrium leaves the market at the efficient outcome.
- Price elasticity of demand (PED) measures responsiveness of Qd to price changes: PED = %ΔQd / %ΔP. The midpoint formula uses averages to avoid direction bias.
- PED is expressed in absolute value. |PED| > 1 = elastic (responsive); |PED| < 1 = inelastic; |PED| = 1 = unit elastic; |PED| = 0 = perfectly inelastic; |PED| = ∞ = perfectly elastic.
- Determinants of PED: number/closeness of substitutes (more = elastic), proportion of income (larger share = elastic), time horizon (longer = more elastic), necessity vs luxury, addiction.
- Total revenue test: if a price increase raises total revenue, demand is inelastic. If it lowers TR, demand is elastic. If TR stays the same, demand is unit elastic.
- On a straight-line demand curve, the upper half is elastic, the midpoint is unit elastic, and the lower half is inelastic. Total revenue is maximized at the unit-elastic midpoint.
- Price elasticity of supply (PES) = %ΔQs / %ΔP. Supply is more elastic when producers can quickly adjust output, when inputs are available, and over longer time horizons.
- Income elasticity of demand (YED) = %ΔQd / %ΔY. Normal goods have YED > 0; inferior goods have YED < 0; luxury goods have YED > 1; necessities have 0 < YED < 1.
- Cross-price elasticity of demand (XED) = %ΔQd of good A / %ΔP of good B. XED > 0: substitutes; XED < 0: complements; XED ≈ 0: unrelated goods.
- Tax incidence: the more inelastic side of the market bears a greater share of an excise tax. If demand is more inelastic than supply, consumers pay more of the tax.
- An excise tax shifts the supply curve up by the amount of the tax. Equilibrium quantity falls, consumers pay a higher price, producers receive a lower net price, and DWL emerges.