Essential graphs for AP Microeconomics

Production Possibilities Curve

A Concepts:
B • Points on the curve-efficient
G • Points inside the curve-inefficient
o W • Points outside the curve-unattainable with
o C available resources
d • Gains in technology or resources favoring
F D one good both not other.
X
E

Demand and Supply Good Y

√ Market clearing equilibrium
P Variations:
S
• Shifts in demand and supply caused by
changes in determinants
Pe • Changes in slope caused by changes in
elasticity
•Effect of Quotas and Tariffs
D

Qe Q

Floors and Ceilings

P P
S S

Floor Pe
Pe Ceiling

D D

QD Qe QS Q QS Qe QD Q

• Creates surplus • Creates shortage

• Qd<Qs • Qd>Qs
Consumer and Producer Surplus
Consumer surplus
P
S

Pe Producer surplus

Qe Q
Effect of Taxes
A tax imposed on the BUYER-demand curve moves left
• elasticity determines whether buyer or seller bears incidence of tax
• shaded area is amount of tax
• connet the dots to find the triangle of deadweight or efficiency loss.

Price Dead Weight Loss

P
buyers pay S

Price w/o tax

Price sellers D1
receive
D2
Q
A tax imposed on the SELLER-supply curve moves left
• elasticity determines whether buyer or seller bears incidence of tax
• shaded area is amount of tax
• connet the dots to find the triangle of deadweight or efficiency loss.

Dead Weight Loss S2

Price buyers
P
pay S1

Price w/o tax

Price sellers D1
receive
Q
Purely Competitive Product Market Structure
Long run equilibrium for the market and firm-price takers
Allocative and productive efficiency at P=MR=MC=min ATC

P MC AC
S P

Pe Pe MR=D=AR=P

Qe Qe Q
Q

Variations:
• Short run profits, losses and shutdown cases caused by shifts in market demand and
supply.

Imperfectly Competitive Product Market Structure

Monopoly Market Structure
Single price monopolist-price maker Natural Regulated Monopoly
Earning economic profit Selling at Fair return ( Qfr at Pfr)

P P
MC
ATC MC
P
Pm ATC

PFR
D PSO
D
Q Q Qm QFR QSO
Q
MR MR

Monopolistically Competitive Market structure

Long run equilibrium where P=AC at MR=MC output

MC Variations:
P ATC • Short run profits, losses and
shutdown cases caused by shifts in
PMC market demand and supply.

Qmc
MR Q
Pure Competition Resource Market Structure
Perfectly competitive Labor Market-Wage takers
Firm wage comes from market so changes in labor demand do not raise wages.
S
Wage
Rate Wage
Rate

Wc Wc S=MRC

D=
∑ mrp’s DL=mrp
Qc Quantity
qc Quantity
Labor Market Individual Firm
Variations:
• Changes in market demand and supply factors can influence the firm’s wage and
number of workers hired.

Imperfectly competitive market structure-Wage makers

Quantity derived from MRC=MRP (Qm
Wage (Wm) comes from that point downward to Supply curve.
MRC
Wage
Rate
S

Wc a
Wm MRP
c

Qm Qc Q
Externalities
No Externallity Negative Externality
MSC 2
P
MSC P
MSC

Pe
Pe

MSB
MSB
Q
Qo Qo Qe Q
Tax, direct controls, lawsuits, Coase theorem
Positive Externality

MSC
P P
MSC
MSC2

Pe Pe
MBC 2

MSB
MSB
Q Q
Qe Qo Qe Qo
Subsidy to buyer Subsidy to Seller