1. Mr. Bernstein Micro Graphs Review May 2014
AP Economics
Mr. Bernstein
Micro Graphs Review
May 2014

2. AP Economics Mr. Bernstein
The Production Possibilities Curve

3. AP Economics Mr. Bernstein
Economic Growth
Concave due to “Law of increasing opportunity costs”

4. AP Economics Mr. Bernstein
Circular Flow Diagram

5. AP Economics Mr. Bernstein
Expanded Circular Flow Diagram

6. AP Economics Mr. Bernstein
Demand Curves
A Shift in Demand is different from movement along the Demand Curve!!

7. AP Economics Mr. Bernstein
Supply Curves
A Shift in Supply is different from movement along the Supply Curve!!

8. AP Economics Mr. Bernstein
Equilibrium
Price is the adjustment mechanism: falls when
there is a surplus, rises when there is a shortage

9. AP Economics Mr. Bernstein
Simultaneous Shifts of Supply and Demand Curves
Example: Demand for Justin Beiber tickets decreases and Supply decreases
Equilibrium Price is ambiguous but Quantity change decreases (awww…)
Know all four possible combinations

10. AP Economics Mr. Bernstein
Elasticity along the Demand Curve
Consumers are less price sensitive on inexpensive items
TR begins to fall as prices rise and Elasticity grows

11. AP Economics Mr. Bernstein
Consumer Surplus and Producer Surplus
CS is the difference between what a consumer is willing to pay for a good or service and what they actually have to pay
PS is the difference between what a producer must receive to sell a unit and the actual price they receive

12. AP Economics Mr. Bernstein
Deadweight Loss Example: The Effect of Taxes
Excise tax causes lower Q, efficiency loss
Qt Q D
Dead Weight Loss P Q S1 S CS T D D T PS

13. AP Economics Mr. Bernstein
Price Ceilings
Price ceiling is below equilibrium, creates shortage

14. AP Economics Mr. Bernstein
Price Floor
Price floor is above equilibrium; creates surplus

15. AP Economics Mr. Bernstein
Quotas (Quantity Controls)
Examples: limits, licenses; creates price “wedge”

16. AP Economics Mr. Bernstein
Firm’s Cost Curves: Swoosh, Smirk and Smile
The MC curve intersects the U-shaped AC and AVC curves at their minimum points

17. AP Economics Mr. Bernstein
Perfectly Competitive Firm
Produce at MR=MC
Profit = MR – ATC
In this case, zero
economic profit…
This is long-run
equilibrium…
Profit or loss if P > or < ATC
ATC Q* MC
MR D.AR.P! $
Output

18. AP Economics Mr. Bernstein
The Short-Run Shut-Down Decision
Shut down when P < AVC
ATC
P=ATC Q* MC
P=MR=d=AR $
Output
AVC
Shut-down
Price

19. AP Economics Mr. Bernstein
Long Run Average Costs
U-shaped LRATC is a series of U-shaped SRATCs – one for each level of fixed costs

20. AP Economics Mr. Bernstein
Adjustment toward Long-Run Equil (Perf Comp)

21. AP Economics Mr. Bernstein
Classic Monopoly Graph
Q at MR=MC; lower Q and higher P than Perfect Competition; long-run economic profit exists due to barriers to entry

22. AP Economics Mr. Bernstein
Monopoly Reduces Societal Welfare

23. AP Economics Mr. Bernstein
Price Regulation Restores Consumer Surplus

24. AP Economics Mr. Bernstein
Monopolists will use Price Discrimination
Without competition, they take advantage of differing elasticities

25. AP Economics Mr. Bernstein
Game Theory
Each player competes
to maximize individual
payoffs and ignores the
effects of his/her action
on the payoffs received
by the rival
But Oligopolies engage
in tacit collusion, tit for tat

26. AP Economics Mr. Bernstein
Monopolistic Competition in the Long Run
Adjusts to normal profit, as in Perfect Competition
P*=ATC, tangent to ATC (not at minimum…)

27. AP Economics Mr. Bernstein
Factor Market: Labor
Value of W* = MRPL; (MC = W)
Market Labor Demand
Market Labor Supply
Wage W* Q

28. AP Economics Mr. Bernstein
Imperfect Competition in the Labor Market
Hire where
MPRL = MFCL
Monopsony pays
W* < MRPL
Remember, whether
Perfect or Imperfect
Markets, firms hire
where MRPL = MFCL
MFCL
Labor Supply W*
MRPL
Wage
Quantity of Labor (workers) E*

29. AP Economics Mr. Bernstein
Equilibrium in the Market for Land and Capital
Supply curve for Land is very steep (inelastic)

30. AP Economics Mr. Bernstein
Positive Externalities: MSB > MPB
Market underproduces
vs. socially optimal outcome
Deadweight loss
Policy to eliminate:
Subsidy
Price, MSB
MPB
MSB S
Popt
Qopt
Qmkt
Pmkt
Subsidy
Pcons
Qty

31. AP Economics Mr. Bernstein
Negative Externalities: MSC > MPC
Market overproduces
vs. socially optimal outcome
Deadweight loss
Policy to eliminate:
Per unit tax
Lump-sum tax does
not affect MC so does not
affect Q
Price, MSC
MPC D
MSC
Popt
Qopt
Qmkt
Pmkt
Tax
Pfirm
Electricity