AP Microeconomics cheat sheet

Price elasticity of demand = (% change in quantity demanded) / (% change in price); demand is elastic when |E| > 1, inelastic when |E| < 1, unit elastic when |E| = 1.

Total revenue test: if price and total revenue move in opposite directions, demand is elastic; if they move together, demand is inelastic.

Income elasticity of demand: positive for normal goods, negative for inferior goods; cross-price elasticity is positive for substitutes and negative for complements.

Consumer surplus is the area below the demand curve and above price; producer surplus is the area above the supply curve and below price.

A binding price ceiling is set below equilibrium and creates a shortage; a binding price floor is set above equilibrium and creates a surplus.

A per-unit tax on sellers shifts supply up by the tax amount; the side of the market that is more inelastic bears the larger share of the tax burden.

For a profit-maximizing firm, MR = MC; in perfect competition P = MR, so the rule becomes P = MC.

Accounting profit = total revenue minus explicit costs; economic profit = total revenue minus explicit plus implicit costs (including opportunity cost).

Deadweight loss arises when quantity traded differs from the allocatively efficient quantity where marginal social benefit equals marginal social cost.

Label every axis, curve, and equilibrium point; a correctly drawn and labeled graph earns points that a described graph does not.

When asked to calculate, show the formula and substitution; an unsupported number frequently earns no credit even if correct.

For elasticity calculations use the midpoint (arc) method unless the prompt specifies otherwise: divide the change by the average of the two values.

For tax incidence, show the new quantity, the price paid by buyers, the price received by sellers, tax revenue (tax times quantity), and deadweight loss as a triangle.

For monopoly or monopolistic competition, identify the profit-maximizing quantity where MR = MC, then read price off the demand curve at that quantity.

Identify market structure by number of firms, product differentiation, and barriers to entry; state the efficiency outcome (P vs. MC) to justify a conclusion.

For externality questions, distinguish marginal private cost/benefit from marginal social cost/benefit; a negative externality means MSC > MPC, a positive externality means MSB > MPB.

In factor markets a firm hires labor until marginal revenue product equals the wage (MRP = MRC); show the MRP = MPL times product price relationship.

Explain changes with a chain of reasoning: state the initial shift, the effect on equilibrium price and quantity, then the effect on the requested surplus or welfare measure.