AP® Microeconomics Cheat Sheet
This AP Microeconomics cheat sheet provides a clear summary of crucial concepts, including supply and demand, elasticity, market structures, and resource allocation. It's designed to help students master key topics efficiently.
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Unit 1: Basic Economic Concepts
Scarce resources: Limited supply vs. unlimited demand.
Factors of production: Land, labor, capital, and entrepreneurship.
Opportunity cost (OC): The value of the next best alternative.
Efficiency: Producing maximum goods with minimal resources.
Economic systems: Free market vs. command economy.
Comparative advantage: Producing a good at a lower OC than others.
Absolute advantage: Producing more of a good using the same resources.
Law of diminishing returns: More resources lead to diminishing utility over time.
Unit 2: Supply & Demand
Law of demand: As price increases, quantity demanded decreases.
Law of supply: As price increases, quantity supplied increases.
Market equilibrium: Occurs when quantity demanded equals quantity supplied.
Price elasticity of demand (PED): Sensitivity of demand to price changes.
Price elasticity of supply (PES): Sensitivity of supply to price changes.
Income elasticity of demand (IED) and cross-price elasticity of demand (XED): Identifies normal/inferior goods and complements/substitutes.
Price floors and ceilings: Government-imposed limits on market prices.
Consumer and producer surplus: Benefits to consumers and producers at equilibrium.
Unit 3: Production, Cost, & the Perfect Competition Model
Total cost (TC): Combination of fixed and variable costs.
Short-run and long-run costs: Difference in how firms handle inputs.
Economic profit: Total revenue minus explicit and implicit costs.
Perfect competition: Firms are price takers with low barriers to entry.
Allocative and productive efficiency in perfect competition: Allocative in the short-run; both in the long-run.
Unit 4: Imperfect Competition
Monopolies: Single sellers with prohibitive barriers to entry.
Deadweight loss (DWL): Result of monopolies producing less output at higher prices.
Price discrimination: Charging consumers the maximum they are willing to pay.
Monopolistic competition: Firms with product differentiation.
Oligopoly: Market with few interdependent sellers.
Game theory: Nash equilibrium and dominant strategies.
Unit 5: Factor Markets
Factor markets: Labor is the product, demand comes from firms, and supply comes from individuals.
Perfect competition in factor markets: Firms are wage takers.
Monopsony: Single employer with power over wages and hiring.
Unions: Advocate for better wages and labor conditions.
Unit 6: Market Failure & the Role of Government
Externalities: Indirect costs or benefits to third parties.
Positive externalities lead to under allocation, solved with subsidies.
Negative externalities lead to overallocation, solved with taxes or quotas.
Public goods: Nonexcludable and nonrival goods.
Market failure: Inefficient resource allocation due to externalities or imperfect competition.
Lorenz curve and Gini coefficient: Measures income inequality.