AP Micro - GRAPHS

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Last updated 6:36 PM on 5/3/26
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35 Terms

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Production possibilities curve

Maximum combinations of two different goods (or categories of goods) that can be produced

  • Concave curve indicated increasing opportunity costs due to imperfectly adaptable resources

  • Linear curve indicates constant opportunity costs due to perfectly adaptable resources

  • Points outside the curve are impossible because of scarcity

  • Greater quality or quantity of resources expands the curve (outward shift)

    • Can affect just one side

<p>Maximum combinations of two different goods (or categories of goods) that can be produced</p><p></p><ul><li><p>Concave curve indicated <strong>increasing opportunity costs</strong> due to imperfectly adaptable resources</p></li><li><p>Linear curve indicates <strong>constant opportunity costs</strong> due to perfectly adaptable resources</p></li><li><p>Points outside the curve are impossible because of scarcity</p></li><li><p>Greater <u>quality</u> or <u>quantity</u> of resources expands the curve (outward shift)</p><ul><li><p>Can affect just one side</p></li></ul></li></ul><p></p>
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Supply and Demand

<p></p><p></p>
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Price floor

When price is above equilibrium: surplus (price floor has to be above to be binding)

<p>When price is above equilibrium: surplus (price floor has to be above to be binding)</p><p></p>
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Price ceiling

When price is below equilibrium: shortage (price ceiling has to be below to be binding)

<p>When price is below equilibrium: shortage (price ceiling has to be below to be binding)</p><p></p>
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Excise tax

Per-unit tax

More inelastic = More tax burden

<p>Per-unit tax</p><p>More inelastic = More tax burden</p>
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Autarky graph

An autarky graph represents a country's market in a state of self-sufficiency or isolation, where no international trade occurs

<p><span><mark data-color="#ffffff" style="background-color: rgb(255, 255, 255); color: inherit;">An autarky graph </mark></span><mark data-color="#ffffff" style="background-color: rgb(255, 255, 255); color: inherit;">represents a country's market in a state of </mark><strong><mark data-color="#ffffff" style="background-color: rgb(255, 255, 255); color: inherit;">self-sufficiency or isolation, where no international trade occurs</mark></strong></p>
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World trade graph - low world price

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World trade graph - high world price

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World trade graph - with tariff

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Total cost curves

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Average cost curves

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Long-run ATC

<p></p>
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Perfect competition

MR = MC

In the long run: no economic profit

<p>MR = MC</p><p>In the long run: no economic profit</p>
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Perfect competition - shut down

P < Minimum AVC: Shut down

The firm’s supply curve is the marginal cost above the minimum of the average variable cost

<p>P &lt; Minimum AVC: Shut down</p><p></p><p>The firm’s supply curve is the marginal cost above the minimum of the average variable cost</p>
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Monopoly

  • MR = MC

  • Price up to demand

  • Earns economic profit in the long run

  • ATC is long run ATC (capture economies of scale)

  • Productively efficient: when min ATC = MC

<ul><li><p>MR = MC</p></li><li><p>Price up to demand</p></li><li><p>Earns economic profit in the long run</p></li><li><p>ATC is long run ATC (capture economies of scale)</p></li><li><p>Productively efficient: when min ATC = MC</p></li></ul><p></p>
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Monopoly - consumer and producer surplus

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Monopoly - economic profit

ATC below this point

<p>ATC below this point</p>
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Monopoly graph elasticities

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Natural monopoly

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Unregulated natural monopoly

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Natural monopoly - socially optimal price ceiling

  • P = MC

  • Earns economic losses

  • Gov has to give them lump sum subsidy

<ul><li><p>P = MC</p></li><li><p>Earns economic losses</p></li><li><p>Gov has to give them lump sum subsidy</p></li></ul><p></p>
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Natural monopoly - fair return price

  • P = ATC

<ul><li><p>P = ATC</p></li></ul><p></p>
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Price discriminating monopoly

  • MR = D = AR = P

  • Allocatively efficient (no DWL)

  • Turn consumer surplus into profit

<ul><li><p>MR = D = AR = P</p></li><li><p>Allocatively efficient (no DWL)</p></li><li><p>Turn consumer surplus into profit</p></li></ul><p></p>
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Monopolistic competition

  • Similar to monopoly graph (but demand curve flatter or more elastic)

  • Breaks even in the long run but can earn economic profits in the short run

  • When earning profit: demand and MR shift left to return to breaking even (opposite for loss)

<ul><li><p>Similar to monopoly graph (but demand curve flatter or more elastic)</p></li><li><p>Breaks even in the long run but can earn economic profits in the short run</p></li><li><p>When earning profit: demand and MR shift left to return to breaking even (opposite for loss)</p></li></ul><p></p>
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Monopolistic competition - excess capacity

Gap between profit-maximizing output and min. ATC output (productively efficient output)

<p>Gap between profit-maximizing output and min. ATC output (productively efficient output)</p>
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Factor market

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Perfectly competitive factor market - one firm

<p></p>
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Monopsony

  • Hire where MRP = MRC

  • Wage is at supply below

  • DWL in triangle

  • Only one buyer

  • Firm is wage-maker:

    • To hire additional workers, the firm must increase the wages for all workers

<ul><li><p>Hire where MRP = MRC</p></li><li><p>Wage is at supply below</p></li><li><p>DWL in triangle</p></li><li><p>Only one buyer</p></li><li><p>Firm is wage-maker:</p><ul><li><p><span style="background-color: transparent; font-family: &quot;Times New Roman&quot;, serif;">To hire additional workers, the firm must increase the wages for all workers</span></p></li></ul></li></ul><p></p>
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Negative externality in production

  • DWL is arrow towards NEW equilibrium

  • Affects supply curve

<ul><li><p>DWL is arrow towards NEW equilibrium</p></li><li><p>Affects supply curve</p></li></ul><p></p>
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Negative externality in consumption

  • DWL is arrow towards NEW equilibrium

  • Affects demand curve

<ul><li><p>DWL is arrow towards NEW equilibrium</p></li><li><p>Affects demand curve</p></li></ul><p></p>
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Negative externality - correction with per-unit tax

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Positive externality in production

  • DWL is arrow towards NEW equilibrium

  • Affects supply curve

<ul><li><p>DWL is arrow towards NEW equilibrium</p></li><li><p>Affects supply curve</p></li></ul><p></p>
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Positive externality in consumption

  • DWL is arrow towards NEW equilibrium

  • Affects demand curve

<ul><li><p>DWL is arrow towards NEW equilibrium</p></li><li><p>Affects demand curve</p></li></ul><p></p>
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Positive externality - correction with per-unit subsidy

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Lorenz curve

  • Measures income distribution

  • The closer the Lorenz curve is to the line of equality, the more equal the distribution of income is within that society

<ul><li><p>Measures income distribution</p></li><li><p>The closer the Lorenz curve is to the line of equality, the more equal the distribution of income is within that society</p></li></ul><p></p>