microecon cheat sheet This is a topic that many people are looking for. bluevelvetrestaurant.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, bluevelvetrestaurant.com would like to introduce to you Every AP MICRO graph (25!!) explained in 12 minutes!!. Following along are instructions in the video below:
“There econ students yesterday published. A video in which i went over every graph from from the ap macro course in just under ten minutes. Now i had to go. Nine graphs in ten minutes.
So when i set out to make a video covering every ap micro graph. I wanted to do that in ten minutes as well but when i went through the ap syllabus. I found out that there are actually over 25 graphs you have to know for ap micro. So i have bad news.
I had to take 12 minutes to go through every graph. But that s what you re about to watch. I go through every graph from the ap micro class. Not only do i illustrate the graph for you i explain it as well so enjoy the video please subscribe to my channel and if you re studying for the ap micro exam.
Follow the link below to my website where you can order yourself the ultimate ap. Microeconomics class notes. I ve also got the notes for ap. Macro as well.
And if you haven t seen the video covering all the ap macro graphs. Yet please go back to my channel and check that one out too let s see if i can do it guys 12 minutes to cover 26 graphs here we go let s start with the ppc. We ll put one good on each axis good a good b you could also put capital goods and consumer goods. This is a straight line ppc representing a constant opportunity cost between the two goods a point inside the ppc.
Such as point x. Represents. An inefficient or under utilisation of resources point. Y.
Represents. An efficient utilization of resources and points e is not possible. But could be through economic growth moving on to supply and demand. We got price and the vertical access quantity on the horizontal axis.
We ve got a downward sloping demand curve representing the inverse relationship between price and quantity and an upward sloping supply curve representing the direct relationship between price and quantity equilibrium is at the intersection of supply and demand pe and qe now what happens. If there s a shift in one of the curves in this case. We re going to show a shift in demand outwards representing an increase in demand. There s a temporary shortage of the good is it the old equilibrium price.
The quantity demanded exceeds the quantity supplied. But the equilibrium will be restored. When price increases to a new equilibrium at the intersection of the new demand curve and the supply curve anytime. There s a shift in demand or supply for a good you re gonna see a change in equilibrium price and quantity be sure you re familiar with the determinants of demand and supply.
Before you move on to the next video next we ll talk about consumer and producer surplus. We re gonna start with the market in equilibrium with equilibrium price and quantity and we ll identify our area of consumer surplus as the area below the demand curve and above the equilibrium price. This represents. The additional happiness of consumers who paid less than they were willing to pay next.
We ll identify the area of producer surplus. Which is the area the price and above the supply curve. This represents..
The extra welfare of producers who sold the good for more than they were willing to sell it for what if the market is out of equilibrium at a price. Such as p1 at this price. Which is higher than equilibrium. We have a deadweight loss.
We have a loss of total surplus in the market consumers are worse off because they re paying a higher price. Therefore have less surplus and producers are better off because they re selling for a higher price at any price other than pe. There is a deadweight loss that s a very important point when talking about consumer and producer surplus let s move on a government intervention to markets will start with a price ceiling. This is a maximum price that below equilibrium meant to make consumers better off notice that it creates a shortage in the market as the quantity demanded is greater than the quantity supplied consumer surplus increases.
But producer surplus decreases and overall there s a loss of total surplus creating a deadweight loss in the market next. We have price floors. This is a minimum price set above equilibrium meant to help producers in a market notice that a price floor creates a surplus or an excess supply. Where the quantity supplied is greater than quantity.
Demanded producers are helped therefore. There s an increase in producer surplus. But consumers are worse off and overall once again. There s a loss of total surplus.
Creating a deadweight loss in the market time to look at per unit taxes recall that a per unit tax is a determinant of supply therefore a tax is going to shift the supply curve up vertically by the amount of the tax. Remember supply also equals marginal cost the increase in marginal cost causes a decrease in the equilibrium quantity to qt and increase in the price consumers paid to pc and a decrease in the price that producers get to keep to pp. There s a decrease in both consumer surplus and producer surplus. And there s a burden imposed on both consumers and producers.
The green rectangle represents the consumer burden of the tax. The purple rectangle represents producer burden of the tax and the black rectangle represents. The tax revenue generated by the tax and once again just like in all government interventions. There s a deadweight loss as total surplus decreases in the market time to look at the effect of a subsidy.
This is a tricky one a subsidies also determine of supply it lowers the marginal cost for producers. Therefore shifts the supply curve outward or down vertically by the amount of the subsidy. This causes an increase in equilibrium quantity to q1 and a decrease in the price that consumers pay. But an increase in the price that producers get to keep because they re being subsidized on top of what consumers pay now.
There s an increase in both consumer surplus. Which is yellow here and producer surplus. Which is blue that overlap each other overall however the cost of the subsidy to taxpayers outlined in outweighs. The benefit in the increase in consumer and producer surplus.
Therefore. There s a loss of total surplus. A deadweight loss once again subsidies create devery losses. Because total cost to taxpayers exceeds.
The total benefit to producers and consumers next. We going to look at an import tariff. This is a tax on goods imported into a country. So we have to show both the domestic demand and domestic supply.
But also the world s supply. Assuming that the world can produce the good more cheaply than domestic producers. The world price pw is lower than domestic price without any intervention..
The quantity supplied domestically would be less than the quantity demanded domestically a tariff increases the cost of imported goods shifting the world s supply curve upward vertically by the amount of the tariff raising the price to pt paid by domestic consumers this causes an increase in the domestic quantity supplied to qsr a decrease in domestic quantity demanded to qd an increase in domestic producer surplus yet a decrease in domestic consumer surplus overall there s a deadweight loss and an increase in government revenue resulting from the tariff let s move on to business economics. A theory of the firm. We re gonna start with productivity curves. This is how much output is attributable to each additional worker hired.
So we re looking at the quantity of labour marginal product is upward sloping because of increase in marginal returns and diminishing marginal returns. Average product increases until across this marginal product. Then it decreases the downward sloping range of marginal product represents the range of employment over which the firm experiences. Diminishing marginal returns its productivity also dictates the shape of a firm s short run cost curves and marginal product decreases moderate cost increases when average product decreases average cost increases.
The avc and atc curves must cross the marginal cost curve at their lowest points. That s very important let s look at the long run average total cost curve. This is basically the same as a short run atc curve. The only difference is the explanation for why it slopes down and slopes up.
When atc is decreasing the firms experiencing economies of scale when it reaches its lowest point the firm s achieve minimum efficient scale and when atc is increasing the firm s experiencing diseconomies of scale or decreasing returns to scale. Remember the shape of the atc is the same about the short of the long run. The only difference is the explanation for that shape let s now look at a perfectly competitive firm in the short run. We ve got cost and price on the vertical axis.
We ve got the horizontal marginal revenue and demand curve. This is determined by the price in the market marginal cost slopes upwards. It crosses the marginal revenue curve and that s the profit maximizing level of output for the firm firms will always produce where mc equals mr2 maximize the profits now this firm is experiencing economic profits because at the mc equals m. Our point the is higher than its atc in the long run of course.
You re gonna see that these profits are eliminated in the long run imperfect competition the existence of economic profits will be eliminated as new firms enter the market as a result the price will fall to the minimum average total cost of the individual firm therefore at its mc equals m. Our point the profit maximizing point the firm will earn zero economic profits. However the benefit is that the firm s will be productively efficient because they re producing at their lowest cost level of output. There are no economic profits in the long run entry will eliminate profits and exit will eliminate losses.
Let s move on to imperfect competition. We ll start with the monopolies. This is a firm with total price making power therefore its demand curve is downward sloping and its marginal revenue curve falls at twice the slope of demand. The firm will once again produced where marginal revenue equals marginal cost in order to maximize its profits at this level of output.
The price should be higher than the atc assuming the firm is earning economic profits and there are very high barriers to entry therefore this firm can expect to continue to earn economic profits as long as it continues to produce goods that consumers like notice. However that the price is higher than the marginal costs. Representing allocated in efficiency unlike perfectly competitive markets. Monopolists are inefficient.
They will under produce the good at a level less than what would be produced in a competitive market monopolist may not always want to maximize the profits in some cases. They might want to increase their output produce at a level at which their revenues are maximized recall that marginal revenue equals zero. At the point. Where total revenue is at its greatest therefore the revenue maximizing level of output is where the marginal revenue.
Curve crosses the zero axis notice that the yellow area of economic profits is smaller than the profit maximizing monopolist. However the blue area represents total revenues this rectangle is largest when marginal revenue equals zero. A natural monopoly is an industry in which very large fixed costs. Mean that the average total cost.
Curve slopes downwards over a very wide range of output in other words. The firm has very large economies of scale. Therefore..
It only makes sense for one firm to produce this good marginal revenue is going to cross marginal cost at level of output. Well below the socially optimal level. Where marginal cost equals price. Therefore.
The firm is going to under produce the good and government might need to regulate this market in order to assure a more socially optimal quantity industries such as public education public transportation and recycling and waste collection tend to be natural monopolies and they tend to be regulated by government to make sure that the level of output achieved is closer to the socially optimal level. A perfectly price discriminating monopolist is one of the charges each consumer. Exactly what he or she is willing to pay therefore the demand curve equals. The marginal revenue curve.
The firm is going to at the profit maximizing level of output. Where marginal cost equals marginal revenue. And this just happens to be the socially optimal or allocated. Li.
Efficient level of output. There s a decrease in consumer surplus in fact there will be zero consumer surplus. But overall there s an increase in welfare and the market becomes allocated li. Efficient.
What used to be consumer surplus is now firm revenue. The yellow area here now represents the total profits for the price discriminating monopolist since every consumer pays exactly what they re willing to pay there s no consumer surplus. But there s an increase in total surplus and the market becomes efficient a monopolistically competitive firm is one with some characteristics of perfect competition in some characteristics of monopolies. It is a price maker that for demand is downward sloping in marginal revenues less than demand when the firm produces that its profit maximizing quantity.
However the price will equal the average total cost entry will eliminate profits because there are low entry barriers. Exit will eliminate losses. Therefore. This firm experiences zero economic profits in the long run.
But it is still a price maker time to move on to labor markets. This is where firms demand labor demand for labor is downward sloping that represents the marginal revenue product. This is the marginal product of labor multiplied by the price of the good being sold supply of labor s upward sophy because of higher wages households are willing to supply more of their labor to a particular labor market notice that the price is the wage rate and the equilibrium price in the market is the equilibrium wage rate. A perfectly competitive employer is a wage taker this is a firm that is very small compared to the entire labor market.
It does not have to raise wages to attract more workers therefore the cost of hiring additional workers is the market wage rate or wr e supply. Equals marginal resource cost and the profit maximizing level of employment. Is where the marginal revenue product. Equals.
The marginal resource cost. The logic. Here is that the firm will hire works. Until.
The last worker hired costs. The firm exactly as much as that worker earned the firm in terms of revenue. Mr. C.
Equals. Mrp is the profit maximizing level of resource employment. A monopsony is a firm that is a wage maker..
This is a friend that has to raise wages to attract more workers to come work for it in contrast to a perfectly competitive employer because it must raise the wage rate to attract more workers. The marginal resource cost the cost of hiring additional workers is always higher than the wage rate. That it s paying its workers for this reason. The firm will employ fewer workers and pay a lower wage rate than would be paid and employed in a perfectly competitive labor market.
Our last topic is market failure. I m gonna start with negative production externalities. This is a market in which the cost to the environment or to society as a whole of producing a good that s the marginal social cost is grow the cost to the private firms. That produce it which is the marginal private cost for this reason.
The socially optimal quantity q s. O is less than the equilibrium quantity of qe. There s a deadweight loss. Because at the equilibrium quantity.
The marginal social cost is greater than the marginal social benefit a negative consumption externality exists. When the consumption of a good benefits. The individual consumer. More than a benefit society s a hold therefore the marginal social benefit is less than the marginal private benefit and once again the equilibrium quantity is greater than the socially optimal quantity at qe the marginal social cost the cost of society of the goods consumption is greater than the benefit to society therefore.
There s a deadweight loss and the market would be better off with less of the good produced and consumed in contrast. We have a positive consumption externality. This is a good that benefits society more than a benefits. The private consumer of the good a good example is education the more education and individual gets the better off society as a whole as the marginal social benefit is greater than marginal private benefit and an equilibrium quantity.
There s a potential welfare gain of more of the good being produced the blue triangle represents. The deadweight loss or how much better off society. Would be if more of this good were produced and for our final graph we have the lorenz curve. This is a way of illustrating the degree of income inequality in the country on the vertical axis.
We have the cumulative income of society in quintiles on the horizontal axis. We have the population in quintiles. The red line through the middle represents. The line of complete equality.
If this were a country s lorenz curve. Then every quintile would earn the identical amount of income as every other quintile. There d be no inequality at all however in the real world. We have a lorenz curve.
Such as that we see here the richest 20 in society. Earned 40 percent of the income and the poorest 20 percent in society. Earn only 5 of the income the closer the lorenz curve is to the line of equality. The more equal society is the further away the lorenz curve is from line of equality.
The less equal society is wow that was intense i ll tell you what that was one of the toughest videos. I ve ever made if you thought that was good. And you think you could use more of my resources to help you study for that exam. Please go to the link below and sign up for tutoring and order yourself a set of ap micro class notes thanks for watching this video guys please subscribe to my channel and recommend more of my videos to your friends good luck on that exam next month here we go.
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