AP微观经济知识点

Sherry Yao2013530299AP MICRO REVIEW1. Basic Economic Concepts (8%-14%)A. Scarcity, choice, and opportunity cost Scarcity: the limited nature of societys resources Economics: the study of how society manages its scarce resources People face trade-off (efficiency or equality) Opportunity cost: whatever must be given up to obtain some itemB. Production possibilities curve The production possibilities curve shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology Qy 1. The opp cost of Qx equals the slope of curve 2. The opp cost of Qx is higher, the curve is steeper 3. opp cost is constant, the PPF is strict line 4. Technology advance PPF shiftInefficient QxC. Comparative advantage, absolute advantage, specialization and trade Comparative advantage: the ability to produce a good at a lower opportunity cost than another producer Absolute advantage: the ability to produce a good using fewer inputs than another producers Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.D. Economic systemE. Property rights and the role of incentives Property rights: the ability of an individual to own an exercise control over scarce resources Market power Market failure: allocate resources inefficiently Negative externality Incentive: something that induces a person to act (the prospect of a punishment or a reward)F. Marginal analysis Marginal change: a small incremental adjustment to a plan of action People make choice when marginal benefit marginal cost2. The Nature and Functions of Product Markets (55%-70%)A. Supply and Demand (15%-20%)a) Market equilibrium A situation in which the market price has reached the level at which quantity supplied equals quantity demandedb) Determinants of supply Income: income, demand of normal goods, demand of inferior good Prices of related goods: price of substitute, demand of another good price of complements, demand of another good Tastes Expectations: expect higher income, demand Number of buyers: buyers, demandc) Determinants of demand Input price: input price, supply Technology: advance in technology, supply Expectations: expect the price of goods, supply Number of sellers: number of sellers, supplyd) Price and quantity controls Demand, price, quantity Supply, price, quantitye) Elasticity Demand Curve Inelastic: Price, total revenue Demand Curve Elastic: Price, total revenue Normal Goods & Income Elasticity:The Quantity of Normal Goods moves the same direction with the Percentage of Income 对normal goods的需求量与收入变动同方向运动The Elasticity of Normal Goods is usually positive Inferior Goods & Income ElasticityThe Quantity of Inferior Goods moves the opposite direction with the Percentage of Income 对inferior goods的需求量与授予变动反方向运动The Elasticity of Inferior Goods is usually negative Exy1, substitute, Exy1, complementaryf) Consumer surplus, producer surplus, and allocative efficiency Consumer surplus: the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it Producer surplus: the amount a seller is paid for a good minus the sellers cost of providing it Allocative efficiency: the last unit provides marginal benefit to consumer = the marginal cost to producerg) Tax incidence and deadweight loss Tax incident: the manner in which the burden of a tax is a shared among participants in a market Elasticity, the tax burden Deadweight loss: the fall in total surplus that results from a market distortion such as taxB. Theory of consumer choice (5%-10%)a) Total utility and marginal utility Total utility: The aggregate level of satisfaction or fulfillment that a consumer receives through the consumption of a specific good or service Marginal utility: gain from an increase, or loss from a decrease, in theconsumptionof that good or serviceb) Utility maximization: equalizing marginal utility per dollar. (MUX/PX=MUY/PY)c) Income and substitution effectsC. Production and Costs (10%-15%)a) Production functions Production function: the relationship between the quantity of inputs used to make a good and the quantity of output of that good The quantity of the input, the production function gets flatterb) Marginal product and diminishing returns Marginal product: the increase in the amount of output from an additional unit of labor Diminishing return: the property whereby the marginal product of an input declines as the quantity of the input increasesc) Short-run costs Fixed cost in the short rund) Long-run costs and economies of scale Variable cost in the long run Economies of scale: the property whereby long-run average total cost as the quantity of output Diseconomies of scale: the property whereby long-run average total cost as the quantity of output Constant returns to scale: the property whereby long-run average total cost stays the same as the quantity of output changese) Cost minimizing input combination and productive efficiency Efficient scale: the quantity of output that minimized average total cost Produces goods in the quantity where MC intersect with ATC (min ATC)D. Firm behavior and market structure (25%-35%)a) Profit Short-run profit: When ATC (MR=MC) Long-run profit (Normal profit) = zero Economic profit: total revenue - total cost (explicit + implicit) Accounting profit: total revenue - total explicit cost Profit Maximization: produce where MC=MRb) Perfect competition Characteristics: Price takesFree entry & exitMany sellers & buyersFully substitutablePerfectly elastic (demand curveHomogenousLong run: P=ATCMC=MR=P Profit maximization: MC=MR=P=ATC Short run supply and shutdown decision: 1. P ATC: Economic Loss2. AVC P ATC: Operate in the Short run but exit in the long run3.P=AVC/ PAVC: shut down in short runShort-run supply = MC4. P min ATC4. P* MC5. P* MR Long-run monopoly competition Excess capacity: the quantity producedefficient scale excess capacity the pricemarginal cost markup The product-variety externality: positive externality The business-stealing externality: negative externalitye) Oligopoly Characteristics: few sellers control the whole market Fewer substitutes Price maker Interdependence in pricing Inefficiency Economic profit PMC. PMR Collusion: an agreement among firms in a market about quantities to produce or prices to charge Cartel: a group of firms acting in unison Game theory: the study of how people behave in strategic situation Nash equilibrium: reached when the choices of all firms are such that there is no other choice that makes any firm better off (increases profits or decrease loss) Dominant strategy: a strategy that is best for a player in a game regardless of the strategies chosen by other players The output effect: PMC, output, profit The price effect: Q, P, profit Output effect price effect increase production3. Factor Markets (10%-18%)A. Derived factor demand Demand for a factor of productionB. Marginal revenue product The addition unit of product brings addition revenueC. Hiring decisions in the markets for labor and capital A competitive, profit-maximizing firm hires workers up to the point where the VMPL = wageD. Market distribution of income Wage =VMPL= Price x MPLE. Labor demand shift P, VMPL, labor demand Advance in technology The supply of other factorsF. Labor supply shift Changes in tastes Changes in alternative opportunities immigration4. Market Failure and the Role of Government (12%-18%)A. Externalities Positive externality: social benefitprivate benefit Negative externality: social costprivate cost Corrective tax: a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality SubsidiesB. Public goods Private goods: excludable & rival in consumption (clothing/congested toll roads) Public goods: not excludable & not rival in consumption (national defense/uncongested nontoll roads) Common resources: not excludable & rival in consumption (environment/congested nontoll roads) Club goods: excludable & not rival in consumption (fire protection/cable TV/uncongested toll roads)C. Public poli