Essential graphs for AP Microeconomics Production Possibilities Curve

A 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.

G o o d X
F

B C D E W

Demand and Supply
√ Market clearing equilibrium P S Pe

Good Y
Variations: • Shifts in demand and supply caused by changes in determinants • Changes in slope caused by changes in elasticity •Effect of Quotas and Tariffs

D Qe Q

Floors and Ceilings
P S Floor P S Ceiling D Q QS Qe QD Q

Pe

Pe

D QD Qe QS

• Creates surplus • Qd<Qs

• Creates shortage • Qd>Qs

Consumer and Producer Surplus
P Consumer surplus S

Pe

Producer surplus D

Effect of Taxes

Qe

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 • connet the dots to find the triangle of deadweight or efficiency loss. Price buyers pay Price w/o tax Price sellers receive D1 D2 P Dead Weight Loss S

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 • connet the dots to find the triangle of deadweight or efficiency loss. Price buyers pay Price w/o tax Price sellers receive Q D1 Dead Weight Loss P S2 S1

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 S P MC AC

Pe

Pe

MR=D=AR=P

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 P MC ATC Pm PFR D Q MR Q PSO Qm MR QFR QSO D Q MC ATC

Natural Regulated Monopoly Selling at Fair return ( Qfr at Pfr)
P

Monopolistically Competitive Market structure Long run equilibrium where P=AC at MR=MC output
P PMC MC ATC

Variations: • Short run profits, losses and shutdown cases caused by shifts in market demand and supply.
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.
Wage Rate

S
Wage Rate

Wc

Wc D= ∑ mrp’s Qc Labor Market
Quantity

S=MRC DL=mrp
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.
Wage Rate

MRC S b

Wc Wm c Qm Qc

a MRP Q Negative Externality MSC 2

Externalities No Externallity P MSC

P

MSC

Pe

Pe MSB

MSB Q

Qo

Qo Qe

Q

Tax, direct controls, lawsuits, Coase theorem

Positive Externality MSC MSC2 Pe MSB

P

MSC

P

Pe

MBC 2 MSB

Qe

Qo

Q

Qe

Qo

Q

Subsidy to buyer

Subsidy to Seller

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