AP Microeconomics

Study Guide for AP Micro

When to stop hiring workers

MRP=MRC

MPP x P

Marginal Revenue Product (MRP)

TR – TC

Profit

P > ATC

Economic Profit

P < ATC

Economic Loss

MR > 0

Demand is Elastic (TR is declining) 

MR > 0

Demand is elastic (TR is rising) 

MR = 0

Demand is unit elastic (TR is at a maximum)

∆ TR / ∆ Input

Marginal Revenue Product (MRP)

∆ TC / ∆ Input

Marginal Resource Cost (MRC)

∆ Price

Movement Along the Curves

∆ Non-Price Determinant

Shift of a Curve

P Increases, TR increases

Demand is inelastic

P increases, TR decreases

Demand is elastic 

P decreases, TR decreases

Demand is inelastic 

P decreases, TR increases

Demand is elastic

Ways for the government to correct positive externalities

Pay a subsidy equal to the marginal external benefit

Ways for the government to correct negative externalities

Taxation, regulation, and stronger environmental policies

Justification for government regulation of a monopoly

to protect the interests of consumers

Definition of inferior goods

a good whose demand drops when people's incomes rise

Definition of normal goods

experience an increase in demand with a rise in a consumer's income

What would cause the PPC to shift inward and outward.

things that change the output of an economy (advances in technology, changes in resources, more education or training)

When Cross Price Elasticity of Demand is Negative

Compliment

When Cross Price Elasticity of Demand is Positive

Substitute

When Income Elasticity of demand is negative

Inferior Good

When income elasticity of demand is positive

Normal Good

Price elasticity of demand is greater that 1

Elastic

Price elasticity of demand is less than 1

Inelastic

Cross price elasticity of demand

Change in qd of good x/change in price of good y

Income Elasticity of demand

Change in qd of good x/change in income

Price elasticity of demand

(Change in qd/midpoint of qd)/(Change in price/midpoint of price)

Graphs go from….

Inelatic to Unit Elastic to Elastic

Allocatively efficient point

MB(D)=MC

Profit Maximizing Point

MR=MC

Revenue Maximizing Point

MR=0

Point where profit=0

Price=ATC

Productively Efficient Quantity

MC=ATC

Absolute Advantage

When you can produce more than another country in a good

Comparative Advantage

When your opportunity cost is lower than another country

Three Economic Questions

Who to produce for, What to produce, how to produce them

Utility Maximization Rule

MUx/Px = MUy/Py

Diseconomies of scale

the stage of output where as a firm’s output increases, its LRATC curve increases, this is the upward sloping part of LRATC

Economies of scale

as firm’s output increases its LRATC decreases, this is the downward slopping part of the LRATC

Regressive Tax

tax where the tax burden falls as income rises, increases income inequality

Proportional Tax

same tax rates for everyone regardless of income

Progressive Tax

tax that results in higher taxes as income increases

optimal hiring point

MRP = MFC

in a monopsony the MPC is ___ S

above