AP Microeconomics: Key Concepts and Review for Upcoming Mid-Term Exam

1. AP Econ – Micro Review

2. Housekeeping Bring books to class. Morning review sessions – 7:15-7:45 Current event assignment - Thursday

3. Overview Elasticity – DWL Profit & Pure Competition Monopoly & Oligopoly Factor Markets Market Failure

4. Market failure FRQ Mark David Marvin Yucin Christina Also – pollution homework Rahul and Ashwini

5. Today Self assessment in micro concepts. Return & review comparative advantage quiz. Work on elasticity and DWL

6. Student Review Income and substitution effects Price elasticity Determinants of price elasticity Income elasticity – normal and inferior goods Cross price elasticity – complements & substitutes Supply elasticity - determinants of supply elasticity

7. Elasticity problems

8. Summary Elastic vs. inelastic parts of demand curve Elasticity and firm revenue Cross price – complements vs. substitutes Income elasticity – inferior vs. superior. Producer and consumer surplus DWL under tax or quota

9. AP Econ – Micro Review Day 2 – Profit and Pure Competition

10. Do Now Create an example of an accounting profit. Expand the example to show an economic profit.

11. Individual Practice Graph a firm under pure competition showing a short term profit. Graph firm under pure competition in the long-run.

12. Mid-Term Info Thursday 2/6 12:30 to 2:00 p.m. Period 3 – Room D265 Period 5 – Room D264

13. Reminder Test reviews C 250 7:15 – 7:45 a.m. 2:45 – 3:30 p.m. Bring competition, monopoly, oligopoly, and factor tests.

14. Profit and Pure Competion Do problems

15. Summary Accounting vs. economic profits (opportunity cost) Normal economic profit Optimal output rule: MR=MC Lowest cost output: ATC at min.

16. Summary Shutdown price: P<AVC Breakeven price: P=ATC Long run equilibrium under pure competition: P=MC=ATC Productive and allocative efficiency

17. AP Econ – Micro Review Day 3 – Monopoly and Oligopoly

18. Mid-Term Info Thursday 2/6 12:30 to 2:00 p.m. Period 3 – Room D265 Period 5 – Room D264

19. Reminder Test reviews C 250 7:15 – 7:45 a.m. 2:45 – 3:30 p.m. Bring competition, monopoly, oligopoly, and factor tests.

20. Review Pure Competition FRQ

21. Summary Accounting vs. economic profits (opportunity cost) Normal economic profit Optimal output rule: MR=MC Lowest cost output: ATC at min.

22. Summary Shutdown price: P<AVC Breakeven price: P=ATC Long run equilibrium under pure competition: P=MC=ATC Productive and allocative efficiency

23. Class Relay Industry structure matrix • # of firms • Uniform or differentiated • Price make or taker • Non-price competition • Long-term profitability – excess or normal

24. Review Monopoly FRQ

25. Oligopoly & Monopolistic Compeption Problems

26. Student Summary Monopoly pricing and elasticity Monopoly regulation Oligopoly – Cournot vs. Bertrand Oligopoly – strategic behavior Monopolistic competition – short-term Monopolistic competition – long-term

27. Summary - Monopoly Monopoly MR=MC Price on elastic part of the demand curve Regulate to MC=P unless there is a loss. If loss, “fair return price” = ATC = normal profit

28. Summary - Oligopoly • Oligopoly – collusion or competition • Collusion similar to monopoly • Competition similar to pure competition • Game theory • Nash equilibrium (non-cooperation) • Prisoners dilemma (perils of cooperation) • Strategic behavior – tit for tat, price leadership.

29. Summary – Monopolistic Comp Differentiation = downward sloping demand Long-term equilibrium ATC = P = normal profit Not allocatively efficient. P>MC Not productively efficient – excess capacity.

30. Cramer on Oligopoly Oligopoly

31. AP Econ – Micro Review Day 4 – Factor Markets

32. Mid-Term Info Thursday 2/6 12:30 to 2:00 p.m. Period 3 – Room D265 Period 5 – Room D264

33. Summary - Monopoly Monopoly MR=MC Price on elastic part of the demand curve Regulate to MC=P unless there is a loss. If loss, “fair return price” = ATC = normal profit

34. Summary - Oligopoly • Oligopoly – collusion or competition • Collusion similar to monopoly • Competition similar to pure competition • Game theory • Dominant strategy (works in all scenarios) • Nash equilibrium (non-cooperation) • Prisoners dilemma (perils of cooperation) • Strategic behavior – tit for tat, price leadership.

35. Summary – Monopolistic Comp Differentiation = downward sloping demand Long-term equilibrium ATC = P = normal profit Not allocatively efficient. P>MC Not productively efficient – excess capacity.

36. Factor Markets – Major Ideas Optimal mix Profit maximizing mix Pure competition model Monopoly model Monopsony model Income inequality

37. Factor Markets Problems

38. More FRQs

39. Final Exam Review 61 points total 11 points for FRQ 50 points for MC + 2 point adjustment to points earned.