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.