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Models in AP Economics

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  1. Models in AP Economics adapted from Sally Meek Sally.meek@pisd.edu

  2. Production Possibility Frontier or Curve Increasing Cost

  3. Increasing opportunity costs Good X Good Y Production Possibility Frontier

  4. Production Possibility Frontier or Curve Constant Cost

  5. Constant opportunity costs Good X Good Y Production Possibility Frontier

  6. Radios Radios Country B Country A 3 2 12 4 Wheat Wheat Using PPFs and comparative advantage

  7. Comparative Advantage Matrix

  8. Supply and Demand Model

  9. P S P1 D Q Q1 Supply and Demand Model

  10. Determinants of Demand and Supply

  11. Demand • Changes in: • Taste and preference • Related Goods: • Δ in prices = Δ in demand for other goods • complements or substitutes • Income • Buyer numbers • Expectations • Supply • Changes in: • Technology • Related Goods: • Δ in prices = Δ in • supply of other goods • complements or • substitutes • Input Costs • Competitor numbers • Expectations Non-price determinants

  12. Market Welfare CS=consumer surplusPS=producer surplus

  13. P S CS P1 PS D Q1 Q Market Welfare CS=consumer surplusPS=producer surplus

  14. Cost Curves

  15. P ATC MC AVC Q Cost structure for a firm

  16. Perfectly Competitive Firm

  17. $ ATC MC P MR=d AVC P1 MR=d1 P2 MR=d2 Q loss Q profit Q The Firm – Perfect competition

  18. The Market and the PC Firm in the short run

  19. P P S MC ATC P MR=d ATC D Q Q Q Q The Market and the PC Firm inthe short run

  20. The Market and the PC Firm in the long run

  21. P P MC S1 LRATC P1 MR=d1 D Q1 Q1 Q Q The Market and the PC Firm in the long run: no economic profits

  22. LRATC

  23. $ LRATC Q The Firm

  24. Monopoly Firm

  25. P P MC ATC ATC D MR Q Monopoly Q

  26. Monopolistic Competitive Firm Short Run

  27. P MC P ATC ATC D MR Q Monopolistic Competitionshort run

  28. Monopolistic Competitive Firm Long Run

  29. P MC P=ATC LRATC D MR Q Monopolistic Competitionlong run

  30. Blue Mart North South North $900, $1,800 $3,000, $3,500 Red Shop South $5,000, $4,000 $1,500, $1,000 1st entry in cell is Red Shop’s daily profits and 2nd entry is Blue Mart’s Oligopoly and game theory

  31. Blue Mart North South North $900, $1,800 $3,000, $3,500 Red Shop South $5,000, $4,000 $1,500, $1,000 1st entry in cell is Red Shop’s daily profits and 2nd entry is Blue Mart’s Oligopoly and game theory

  32. Factor Market—Perfect Competition Market and Firm

  33. W W S labor W S=MRC D labor MRP=d Q Q Q labor Q labor Perfect Competition in the Factor Market

  34. Factor Market—Monopsony

  35. MRC W S W1 MRP q1 Q labor Monopsony

  36. Externalities Negative Externality and Internalized Scenario

  37. MSC P MPC dwl MPB Q Qm Qs Negative production externality ExternalitiesQm=market quantityQs =Socially optimal quantity

  38. Externalities Positive Externality and Internalized Scenario

  39. P MPC dwl MSB MPB Qm Qs Q ExternalitiesQm=market quantityQs =Socially optimal quantity Positive consumption externality

  40. $ MC or MSC MB or MSB Q Q Allocative efficiency Allocative Efficiency