Microeconomics Study Library.

Scarcity, choice, and resource allocation · Opportunity cost and trade-offs · Production possibilities curve (PPC): efficiency (on PPC), inefficiency (inside PPC), unattainability (outside PPC), economic growth (outward shift) · Shape of PPC: straight-line (constant opportunity cost) vs. bowed-out (increasing opportunity cost) · Absolute advantage vs. comparative advantage · Gains from specialization and trade based on comparative advantage · Terms of trade and mutual benefit from exchange

Law of demand and determinants (shifters) of demand: income (normal vs. inferior goods), prices of related goods (substitutes, complements), tastes, expectations, number of buyers · Demand vs. quantity demanded (shift vs. movement along curve) · Law of supply and determinants (shifters) of supply: input prices, technology, number of sellers, expectations · Market equilibrium: equilibrium price and quantity; surplus and shortage · Price elasticity of demand (PED): $E_d = \frac{\%\Delta Q_d}{\%\Delta P}$ · Elastic vs. inelastic demand · Price elasticity of supply (PES) · Cross-price elasticity and income elasticity · Consumer surplus, producer surplus, and total surplus · Price ceilings (below equilibrium → shortage) and price floors (above equilibrium → surplus) · Excise taxes: burden distribution based on elasticities, deadweight loss

Production function: total product (TP), marginal product (MP) · Law of diminishing marginal returns · Short-run cost curves: fixed cost (FC), variable cost (VC), total cost ($TC = FC + VC$) · Average fixed cost (AFC), average variable cost (AVC), average total cost ($ATC = AFC + AVC$), marginal cost (MC) · Relationship between MC and ATC/AVC: MC intersects ATC and AVC at their minima · Long-run average total cost (LRATC) and economies/diseconomies of scale · Perfect competition characteristics: many sellers, identical products, free entry/exit, price-taking behavior · Short-run profit maximization: $MR = MC$ (where $P = MR$ in perfect competition) · Short-run shutdown decision: produce if $P \geq AVC$; shut down if $P < AVC$ · Long-run equilibrium: $P = MR = MC = ATC$ (zero economic profit) · Short-run supply curve = MC above AVC · Long-run supply curve: perfectly elastic (constant-cost industry)

Monopoly: single seller, downward-sloping demand curve, $MR$ lies below demand curve · Monopoly profit maximization: $MR = MC$ → find Q, then go up to demand curve for P · Monopoly profit, consumer surplus loss, and deadweight loss (allocative inefficiency) · Natural monopoly: $LRATC$ still falling; socially optimal pricing ($P = MC$) vs. fair-return pricing ($P = ATC$) · Price discrimination: first-degree (perfect), second-degree (volume discounts), third-degree (market segments) · Monopolistic competition: many sellers, differentiated products, free entry, downward-sloping demand · Monopolistic competition: short-run profit → long-run zero profit (entry eliminates profit) · Oligopoly: few large sellers, interdependence, barriers to entry · Game theory: prisoner's dilemma, dominant strategy, Nash equilibrium, collusion incentives · Kinked demand curve model

Derived demand for factors of production · Marginal revenue product (MRP): in competitive output market, $MRP = MP \times P$; in imperfect output market, $MRP = MP \times MR$ · Value of marginal product (VMP) in perfectly competitive output markets · MRP as the firm's demand curve for labor · Competitive labor market: wage = $MRP$ at equilibrium · Monopsony: single buyer of labor; $MLC > W$; firm hires where $MRP = MLC$ at a wage below the competitive wage · Minimum wage effects in competitive vs. monopsony labor markets · Capital markets and the loanable funds market · Economic rent and its graphical representation

Negative externalities in production: social cost exceeds private cost (MSC above MPC); market overproduces · Positive externalities in production and consumption: social benefit exceeds private benefit (MSB above MPB); market underproduces · Pigouvian taxes: correcting negative externalities by taxing to internalize external costs · Pigouvian subsidies: correcting positive externalities by subsidizing to internalize external benefits · Public goods: non-excludable, non-rival; free-rider problem prevents private provision · Common resources: non-excludable but rival; tragedy of the commons · Asymmetric information: adverse selection and moral hazard · Government policies: antitrust regulation, public provision of public goods, externality corrections