Microeconomics- Everything You Need to Know

Summary

This video by Jacob Clifford offers a comprehensive review for AP and college-level microeconomics students. It covers key concepts like scarcity, opportunity costs, production possibility curves, and comparative advantage. The summary also touches on economic systems, market structures, consumer and producer surplus, and market failures. It's designed for last-minute review before exams and to identify knowledge gaps. The video also promotes the 'Ultimate Review Pack' for further study materials.

Takeaways

• 📚 The video is an introductory microeconomics summary by Jacob Clifford for AP or college-level students, aiming to prepare them for exams and identify areas for further study.
• 🛍 Scarcity and opportunity costs are fundamental concepts, emphasizing that unlimited wants are met with limited resources, and every decision involves trade-offs.
• 📈 The production possibility curve illustrates efficient and inefficient production levels, with different shapes indicating constant or increasing opportunity costs.
• 🔄 Comparative advantage is a core principle, suggesting countries should specialize in products where they have lower opportunity costs and engage in trade for mutual benefit.
• 🌐 Trade can shift a country's production possibility curve, allowing for consumption beyond current resources without actually changing production capabilities.
• 💡 The circular flow model of the economy highlights the interactions between businesses, individuals, and the government in product and resource markets.
• 📉 The law of demand and supply explains the relationship between price and quantity, with equilibrium being established where supply meets demand.
• 🔗 Elasticity measures the sensitivity of quantity demanded to price changes, with elastic and inelastic demands having distinct impacts on total revenue.
• 💰 Consumer and producer surplus, as well as deadweight loss, are important concepts for understanding the efficiency of markets and the effects of price controls.
• 🏭 The theory of the firm in microeconomics involves understanding cost curves, inputs and outputs, and the principle of producing where marginal revenue equals marginal cost for maximum profit.
• 📊 Different market structures, such as perfect competition, monopolies, oligopolies, and monopolistic competition, each have unique characteristics and implications for pricing and output.

Q & A

What is the primary purpose of the video 'ACDC econ' by Jacob Clifford?

The video is designed to provide a summary of essential concepts for an AP or college introductory microeconomics class, aiming to help students prepare right before their AP test or final exam and to review what they know and don't know.

What is the 'ultimate review pack' mentioned by Jacob Clifford?

The 'ultimate review pack' is a product sold by Jacob Clifford that includes a bunch of practice questions and access to hidden videos to help students learn economics in greater detail than what is covered in the summary video.

What is the economic concept of scarcity?

Scarcity refers to the idea that we have unlimited wants and limited resources, which means that every decision made has an opportunity cost, as resources are finite and choices must be made on how to allocate them.

Can you explain the production possibility curve and its significance in economics?

The production possibility curve illustrates the different combinations of two different goods that can be produced using all available resources. Points on the curve represent efficient production levels, while points inside the curve are inefficient, and points outside the curve are currently impossible with the given resources.

What does the Law of Increasing Opportunity Cost imply about resource allocation?

The Law of Increasing Opportunity Cost implies that as more of one product is produced, the opportunity cost of producing the other product increases. This occurs when resources are not similar, and producing more of one good requires giving up increasingly more of the other good.

What is the concept of comparative advantage and why is it important in international trade?

Comparative advantage is the idea that a country should specialize in producing the product where it has a lower opportunity cost compared to other countries. This specialization leads to more efficient production and trade, benefiting all parties involved.

What is the difference between absolute advantage and comparative advantage in the context of trade?

Absolute advantage is straightforward and refers to a country producing more of a good than another country. Comparative advantage, however, requires calculations and indicates which country should specialize in producing a particular good based on lower opportunity costs.

What is the significance of the circular flow model in understanding economic systems?

The circular flow model shows the interactions between businesses, individuals, and the government in an economy. It illustrates the product market, where businesses sell products, and the resource market, where individuals sell their resources to businesses.

What is the concept of elasticity in economics and why is it important?

Elasticity in economics measures how sensitive the quantity demanded or supplied is to a change in price. It is important because it helps predict how changes in price will affect consumer behavior and market outcomes.

What are the implications of price ceilings and price floors on market efficiency?

Price ceilings and floors can lead to market inefficiencies by setting prices above or below the equilibrium level, causing shortages or surpluses. This can result in deadweight loss, which represents a loss of consumer and producer surplus and a reduction in overall market efficiency.

What is the significance of the 'MR=MC' rule in the theory of the firm?

The 'MR=MC' rule, which stands for Marginal Revenue equals Marginal Cost, is a fundamental principle in the theory of the firm. It dictates the quantity a firm should produce to maximize profit, regardless of market structure.

What are the key differences between perfect competition and monopoly market structures?

In perfect competition, there are many small firms with identical products, low barriers to entry, and they are price takers. In a monopoly, there is only one firm with a unique product, high barriers to entry, and the firm is a price maker, setting prices above marginal costs.

What is the concept of price discrimination in the context of monopoly markets?

Price discrimination occurs when a monopoly charges different prices for the same product to different consumers or in different markets. This increases the firm's profit as it captures more consumer surplus.

What is the least cost rule and how does it apply to resource allocation?

The least cost rule is a principle that helps firms determine the optimal combination of inputs (like labor and capital) to minimize production costs. It involves comparing the additional output (marginal product) of each input divided by its price, and adjusting the mix until the marginal utility per dollar is equal for all inputs.

What are market failures and why do they occur?

Market failures occur when the free market does not allocate resources efficiently, leading to a divergence between the socially optimal quantity and the quantity produced by the market. This can happen due to externalities, public goods, or income inequality, among other factors.

What is the difference between positive and negative externalities?

Positive externalities occur when an activity generates additional benefits to third parties who are not directly involved in the market transaction. Negative externalities occur when an activity imposes additional costs on third parties outside of the market transaction.

What is the significance of the Lorenz curve and Gini coefficient in measuring income inequality?

The Lorenz curve visually represents the distribution of income within a population, with a 'banana' shape indicating a high level of inequality. The Gini coefficient is a numerical measure derived from the Lorenz curve, with a value of 0 representing perfect equality and 1 representing maximum inequality.

Outlines

00:00

📚 Introduction to Microeconomics and Study Tips

Jacob Clifford introduces the video as a summary for AP or college-level microeconomics students. The video aims to quickly cover key points for exams, emphasizing it's not a comprehensive re-teach but a review and readiness tool for the AP test or final exams. The presenter mentions the 'Ultimate Review Pack' for deeper practice and study. The video promises to cover microeconomics from scarcity and opportunity costs to comparative advantage, touching on economic systems and the circular flow model, with a call to action to support the channel for continued content creation.

05:01

📉 Fundamentals of Economics: Demand, Supply, and Elasticity

This section delves into the foundational concepts of demand and supply, explaining the downward-sloping demand curve and upward-sloping supply curve, and how they intersect to form market equilibrium. It discusses the impact of shifts in these curves due to various factors and introduces the concepts of substitutes and complements, normal and inferior goods. The paragraph also covers the intricacies of elasticity, including its calculation and implications for price sensitivity. Consumer and producer surpluses, as well as price controls like ceilings and floors, are explained, alongside strategies for identifying deadweight loss and the effects of international trade, tariffs, and taxes on market dynamics.

10:01

🔍 Microeconomic Analysis: Consumer Choice and Production Decisions

The script explores consumer choice theory, where consumers maximize utility by balancing the marginal utility per dollar spent on different goods. It transitions into a discussion on production decisions, starting with the relationship between inputs and outputs, and the concept of diminishing marginal returns. The importance of understanding cost curves (fixed, variable, total) and their behavior on a graph is highlighted. The paragraph also introduces the theory of the firm, emphasizing the significance of producing where marginal revenue equals marginal cost for profit maximization, and the shutdown rule for minimizing losses.

15:01

🏭 Market Structures and Firm Behavior in Microeconomics

This paragraph examines different market structures, starting with perfect competition and moving on to monopolies, oligopolies, and monopolistic competition. It explains how firms in these structures make pricing and production decisions, with a focus on the monopoly's ability to set prices and the implications of high barriers to entry. The concept of price discrimination in monopolies is introduced, along with the strategic considerations of oligopolies and the long-run equilibrium in monopolistic competition. The importance of recognizing the socially optimal output and the inefficiency of monopolies is also discussed.

20:02

👷 Labor Market Dynamics: Demand, Supply, and Wages

The focus shifts to the labor market, discussing the supply and demand dynamics that determine wages and employment. Derived demand for labor is introduced, along with the impact of minimum wage laws on unemployment. The concept of marginal revenue product (MRP) and marginal resource cost (MRC) are used to explain firm hiring decisions. The paragraph also covers the least cost rule for combining labor and capital efficiently, and the challenges of monopsony power in labor markets, concluding with the importance of understanding labor market equilibrium.

25:03

🛑 Addressing Market Failures and Income Inequality

The final paragraph addresses market failures, where the free market does not produce the socially optimal quantity of goods or services. Public goods and externalities are discussed, with examples of how government intervention can correct for negative and positive externalities through subsidies and taxes. The paragraph also introduces the concepts of income inequality, the Lorenz curve, and the Gini coefficient, explaining how different types of taxes can be progressive, regressive, or proportional. The summary concludes with an encouragement for students as they prepare for their exams.

Keywords

💡Scarcity

Scarcity is a fundamental economic concept that refers to the situation where human wants are unlimited, but the resources available to fulfill those wants are limited. In the video, scarcity is introduced as the starting point of economic studies, highlighting the necessity for decision-making and trade-offs in the allocation of resources. For example, the script mentions that scarcity is the idea 'we have unlimited wants and limited resources.'

💡Opportunity Cost

Opportunity cost is the cost of forgoing the next best alternative when making a decision. It is a key concept in economics that helps to understand the trade-offs inherent in resource allocation. The video script illustrates this by stating 'the idea that everything has a cost... any decision you make has a cost.'

💡Production Possibilities Curve

The production possibilities curve (PPC) is a graph that shows all possible combinations of two different goods that can be produced with a given quantity of resources. It illustrates the concept of efficiency in production. The script explains that 'the production possibilities curve... shows the different combinations of producing two different goods using all of your resources.'

💡Comparative Advantage

Comparative advantage is the economic principle that states that a country or an individual should produce goods for which they have the lowest opportunity cost, and then trade for other goods. The video emphasizes this concept by explaining that 'country should specialize in the product where they have a lower opportunity cost.'

💡Demand and Supply

Demand and supply are the two primary forces in a market economy that determine the price and quantity of goods and services. The video script discusses these concepts in detail, explaining that 'demand is a downward sloping curve that shows you the law of demand' and 'there's also a law of supply, when the price goes up people produce more.'

💡Elasticity

Elasticity is a measure of how sensitive the quantity demanded or supplied of a good is to a change in the price of that good. The video script introduces this concept by stating 'elasticity shows how quantity changes when there's a change in price' and further explains the different types of elasticity, such as elastic and inelastic.

💡Consumer Surplus

Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay. It is a measure of the benefit received by consumers from trade. The script mentions consumer surplus in the context of 'consumer surplus is the difference between what you're willing to pay and what you did pay.'

💡Producer Surplus

Producer surplus is the difference between the price at which producers are willing to sell a good and the actual price they receive. It represents the benefit to producers from trade. The video script defines it as 'the difference between the price and what somebody's willing to sell it for.'

💡Price Ceiling and Price Floor

Price ceilings and price floors are government-imposed limits on the prices of goods or services. A price ceiling is a maximum price limit, while a price floor is a minimum price limit. The script discusses these terms by explaining 'when the government comes in and sets prices when it's not at equilibrium that's the idea of price controls' and differentiates between the two.

💡Market Equilibrium

Market equilibrium is the state where the quantity demanded of a good or service equals the quantity supplied at a given price. The video script refers to this concept when it explains the interaction of demand and supply, stating that 'together they form equilibrium.'

💡Marginal Cost

Marginal cost is the cost of producing one additional unit of a good or service. It is a crucial concept in the theory of the firm and decision-making regarding production levels. The video script discusses this by stating 'you start off by learning about the idea of inputs and outputs and as you hire more workers this is the total product you can calculate the marginal product which shows you the additional output that these producers produce.'

Highlights

Introduction to the video by Jacob Clifford, aimed at preparing students for AP Microeconomics tests.

Scarcity as the fundamental economic concept with unlimited wants and limited resources.

Explanation of opportunity costs and the production possibilities curve.

The Law of Increasing Opportunity Costs and its impact on the shape of the production possibilities curve.

Comparative advantage and its importance in international trade.

Different economic systems such as capitalism, command economy, and mixed economy.

The circular flow model illustrating the interaction between businesses, individuals, and the government.

Demand and supply dynamics, including the law of demand and substitutes and complements.

Elasticity of demand and its calculation using the price and quantity changes.

Consumer and producer surplus, and the concept of deadweight loss.

Price controls like price ceilings and floors, and their effects on market efficiency.

International trade and the impact of tariffs and trade barriers on consumer and producer surplus.

Taxation and its effects on supply, demand, and the distribution of tax burden between consumers and producers.

Consumer choice theory and the application of the least cost rule in resource allocation.

Cost curves and the theory of the firm, including fixed, variable, and total costs.

Profit maximization and the shutdown rule in the context of marginal cost and average total cost.

Market structures beyond perfect competition: monopolies, oligopolies, and monopolistic competition.

Labor market analysis including derived demand, the concept of a monopsony, and the least cost rule.

Market failures due to public goods, externalities, and income inequality.

Solutions to market failures such as per-unit subsidies and taxes to correct externalities.

Income inequality measurement using the Lorenz curve and Gini coefficient.

Types of taxes and their impact on income distribution, including progressive, regressive, and proportional taxes.

Conclusion and encouragement for students preparing for exams, highlighting the importance of understanding the material.

Transcripts

hey how you doing econ students this is

Jacob Clifford welcome to ACDC econ now

in this summary video I'm going to go

over everything you need to know for an

AP or college introductory

microeconomics class I'm going to go

super fast but keep in mind this is not

designed to retach you all the concepts

it's designed to help you get ready

right before you walk into the big AP

test your big final also it's a great

way to review what you know and don't

know by watching the entire class over

again you can spot the things that you

have to go back and study and if you've

been watching my videos you know I sell

something called the ultimate review

pack it has a bunch of practice

questions and access to Hidden videos

that help you learn economics these

summary videos they cover everything in

Greater detail than this video I'm doing

right now now I was going to make this

video available only of people who buy

the packet but then I thought you know I

can trust people man if you like my

videos if these videos are helping you

learn economics please go get the packet

I'm going to make this video available

to everyone but if you like my stuff

please support my channel and help me

continue to make great Ecom videos okay

let's start it up now whether or not

you're enrolled in a microeconomics

class or a macroeconomics class it all

starts the same for a basic introductory

econ course it starts with the idea of

scarcity scarcity idea is we have

unlimited wants and limited resources

also you going to learn the idea of

opportunity costs that's the idea that

everything has a cost right it doesn't

matter what you're producing you got to

give up something to produce it any

decision you make has a cost now those

Concepts come together with the

production possibili is curve it's the

first graph you learn in economics it

shows the different combinations of

producing two different Goods using all

of your resources so any point on the

curve is efficient like you're using all

of your resources to the fullest any

point inside the curve is inefficient

any point out here outside the curve is

impossible given your current resources

and there's two different shapes you

have to remember if it's a straight line

production possibilities curve that

means there's constant opportunity cost

which means the resources to produce the

different products are very similar so

similar resources if it's a straight

line if it's a boat outline concave to

the origin that means the resources are

not very similar so when you produce

more of one you have to give more and

more of the other one that's called The

Law of increasing opportunity cost now

this curve can shift if you have more

resources like land labor and capital or

less resources or better technology that

can shift the curve another thing that

shifts the curve is trade if another

country trades with another country that

can shift out their production possibly

curve but it shows how much they can

consume not actually produce so it

doesn't actually change how much you can

make but you can uh consume beyond your

production possibly as curve and that

brings us to the hardest part of this

unit the idea of comparative advantage

comparative advantage is the idea that

country should specialize in the product

where they have a lower opportunity cost

so if you're producing one thing and I'm

producing something else if I can

produce a lower opportunity cost then

you I should produce this you should

produce other thing and then we should

trade now there's two different things

you got to remember absolute advantage

and comparative advantage absolute

Advantage is a joke it's easy you just

figure out who produces more that means

they have an absolute Advantage

comparative advantage requires you to do

some calculations or the quick and dirty

if you saw my unit summary video and it

tells you who should specialize in what

now another thing you have to learn is

the have terms of trade which means how

many units of one product should they

trade for the other product that would

benefit both countries that's the idea

of terms of trade in this unit you also

get a basic overview of different

economics systems like the free market

system capitalism and the idea of a

command economy and a mixed economy

we're going to focus on capitalism in

this class and so you learn the circular

flow model the circular flow model shows

you that there's businesses and

individuals and the government and how

they interact with each other just

remember businesses both sell and buy

two different things they sell products

and they buy resources so there's a

product market and there's a resource

market and individuals you and me we buy

products and we sell our resources and

the government does some stuff as well

another thing you're going to learn here

is some vocab like transfer payments

this is when the government pays

individuals like welfare but it's not to

buy anything it's just to provide some

public service and you also learn the

idea of subsidies when the government

provides businesses money to produce

more and also you're going to talk about

the idea of factor payments so

individuals sell the resources and

businesses pay the factor payments to

those individuals overall unit one is

quick and easy to learn I give it about

a three on the difficulty level out of

10 it's a fast unit makes you get it

makes you get compared Advantage now

unit 2 sets a foundation for everything

you're going to be doing later on you

start with demand and Supply remember

demand is a downward sloping curve that

shows you the law of demand when price

goes up people buy less of stuff right

when price goes down people buy more

that's the idea of price and quantity

demanded understand the idea that this

curve is downward sloping for three

reasons substitution effect income

effect and the law diminishing margin

utility there's also a law of supply

when the price goes up people produce

more price goes down people produce less

right price goes up quantity Supply goes

up price goes down quantity Supply goes

down now together they form equilibrium

please note if price goes up there is no

shift price does not shift the curve it

just moves along the curve creates

either shortage when the price is low or

a surplus when the price is higher you

should also understand when there's

actual individual shifts so there's only

four things that can happen demand can

go up demand can go down Supply can go

up or Supply can go down and you just

watch the graph draw the graph tells you

exactly what happens to the price and

quantity every single time now there's a

double shift when two curves shift at

the same time there's a double shift

rule when two curves shift remember

something is going to be indeterminant

right you can't tell what's going to

happen either price or quantity the

trick here is draw the graph draw the

shift that occurs and that's going to

tell you where you end up whichever one

looks the same right means that's

indeterminate because you can't tell

price will go up or down another trick

really quick is you can actually

separate it out so if demand goes up and

Supply goes up you can actually separate

those two things out put those results

together and that tells you which thing

is indeterminate price or quantity the

next thing you're talk about is the idea

of substitutes and compliments remember

substitutes are two products you buy in

place of each other compens are two

things you buy together the price of one

affects the demand for the other there's

also normal and inferior normal goods

are when the income goes up people buy

more of it inferior Goods when income

goes up people buy less of it the

hardest part probably in this entire

unit is the idea of elasticity

elasticity shows how quantity changes

when there's a change in price elastic

means when price goes up a little bit

people buy a whole lot less so quantity

is very sensitive to a change in price

and when the price goes down people buy

a whole lot more

sensitive to change in price in elastic

looks like this this is the idea when

price goes up people don't buy that much

less when price goes down people buy

just a little bit more so in elastic

demand means quantity is insensitive to

a change in price in this unit you also

learn about the elasticity of demand

coefficient which sounds hard but it's

not hard it's just the percent change in

quantity divided by the percent change

in price this number tells you how

elastic the demand is if it gives you

the absolute value is a number greater

than one that means it's elastic demand

and if it's less than one that makes it

an inelastic demand also you should

understand the idea of cross price

elasticity which is the same kind of

equation but it's a percent change in

quantity of one product relative to the

percent change in price of a completely

different product and it tells you if

they're compliments or substitutes a

positive number means they're

substitutes a negative number means they

complement there's also the income

elasticity coefficient which is the same

idea except it's percent change in

quantity divided by the percent change

income a positive number means a normal

good a negative number means an inferior

good now when you talk about elasticity

there there's also something called the

total revenue test this only applies to

demand don't worry about with the supply

it doesn't work with Supply the idea is

if price goes up and total revenue goes

up that means the demand must be

inelastic if price goes down total

revenue goes down then it must be in

elastic now if price goes up and the

total revenue goes down that means it's

elastic and it has to do with the size

of this box here so side by side you can

tell over here this is in elastic demand

over here it's elastic demand when the

price Falls in elastic demand total

revenue gets smaller that box gets

smaller over here when price Falls total

revenue gets bigger that must be El

elastic demand total revenue test back

to supply and demand make sure you can

spot consumer and producer Surplus

consumer surplus is right here producer

Surplus is right there consumer surplus

is the difference between what you're

willing to pay and what you did pay and

producer Surplus is the difference

between the price and what somebody's

want to sell it for competitive

efficient market maximizes consumer and

producer Surplus so there's no thing

called Dead weight loss now let's talk

about ceilings and Floors when the

government comes in and sets prices when

it's not at equilibrium that's the idea

of price price controls a ceiling looks

like this remember a ceiling always goes

below equilibrium if it's binding if the

question says the ceiling's above

equilibrium just remember nothing's

going to change price in quantity they

don't change a floor looks like this

right there it is a floor always goes

above equilibrium so there's a price

floor you should also be able to spot

consumer and producer Surplus on each

one of them consumer surplus and produc

surplus deadweight loss look like this

for a ceiling on a floor right that's

the idea dead weight loss is the idea of

lost consumer improved Surplus or we're

not being efficient in the market a

competitive market efficient no dead

weight loss ceilings floors monopolies

other Concepts you learn later on create

this idea of dead weight loss another

concept you might see that looks like

this but it's different is the idea of

international trade if we can buy other

products at a cheaper world price that

means the price will fall and that means

producer Surplus will get smaller but

consumer surplus will get bigger

consumers willing to pay did pay can buy

more we're going to import the amount of

shortage that would normally exist that

doesn't exist anymore you might see a

question about a tariff if this world

price goes up because the government

says Ah we don't like that you know low

price let's put a tariff on it that

creates dead weight loss like this and

there's a tariff Revenue box right there

in the middle next up is the idea of

taxes got a supply curve shifting to the

left this is a per unit tax you got to

be a to spot the box of tax revenue note

the vertical distance between the two

Supply curves is the amount of tax per

unit the Box on the top tells you how

much consumers pay of the tax box on the

bottom tells how much producers pay the

tax you can also find the total

expenditures spent on whatever product

this is and how much of that that

producers get to keep this is the net

revenue that producers actually get to

keep also should be spot what happens

when the elasticity changes to this

graph and who ends up paying the taxes

so right here shows you when the demand

is different shapes and different

elasticities who ends up paying for the

tax remember when the demand is

perfectly inelastic consumers pay all

the tax right the more elastic it gets

the more that producers pay of the tax

that's a lot of stuff but there's still

one more thing you have to learn it's a

little different it's the idea of

consumer choice this is the idea that

you have two different products and you

have different additional satisfactions

for each one and you got to figure out

what you actually want to buy keeping in

mind that they're two different prices

so you have to actually use an equation

here it's the margin utility per dollar

of one of them till it equals the margin

utility per dollar of the other one and

another words you figure out how much

additional satisfaction you're getting

divided by the price of one of them and

the additional satisfaction you're

getting from the other one divided by

the price of the other one and that puts

them in like terms and you just keep

buying the one that gives you the most

additional satisfaction divided by the

price right the test might give you a

question like this where it asks you

okay what should they buy if they only

had $30 and there's a special

combination combination that maximizes

the total utility you use this rule unit

2 is super important it's got a lot of

stuff but it's not like hard stuff so I

give this five out of 10 difficulty

level for unit 2 but make sure you

really get it because you're going to

add on to the stuff later on now unit 3

is really the meat and potatoes of

microeconomics this is where you talk

about cost curves you start doing some

calculations you start putting together

the theory of the firm it gets hard but

it starts off easy you start off by

learning about the idea of inputs and

outputs and as you hire more workers uh

this is the total product you can

calculate the marginal product which

shows you the additional output that

these producers produce so this shows

you the relationship between inputs and

outputs and you find out the law of

diminishing marginal returns this means

as you hire more workers and there's

fixed resources you're going to get less

and less additional output there's three

stages of returns this is happened

because of specialization this is

happening of fixed resources and this

happening because workers are stumbling

over each other in each other's way you

take that concept and you catapult now

into cost we talk about the three types

of costs there's fixed cost variable

cost and total cost variable plus fix

equal total that also gives us the per

unit cost curves like average total cost

average variable cost average fixed cost

marginal cost make sure you calculate

them and make sure you understand what

they look like on a graph graph looks

like this at any given quantity all you

can do is go straight up and that tells

you the cost per unit of that unit you

can also Al convert those per unit cost

to total cost just multiply the know

average total cost of producing a

certain number of units times the

quantity that gives you a box that box

is the total cost you can do the same

thing for the variable cost and for the

fixed cost now the shape of these curves

isn't just random they look like this

for a reason marginal cost goes down and

up because as you hire more workers they

specialize so the additional cost those

units are going to fall but as you hire

more workers they produce less and less

additional stuff and so the cost of

those additional units are going to

start going up so marginal cost

goes down and then it goes right back up

again also you should recognize the idea

that ATC hits marginal cost at atc's

minimum when marginal is below the ATC

it pulls it down when marginal is above

the ATC it pulls it right back up again

now it's important to keep in mind that

the cost curves I'm talking about these

are short run cost curves which is

different than the long run the long run

is the idea that all resources are

variable the short run there's some

resource that's fixed in the long run

all resources are variable so the law of

diminishing margin returns does need

apply instead we have a different graph

and a different concept it's right here

as you're producing more you can use

mass production techniques mass

production means your average cost the

long run average total cost will fall

that's the idea of economies of scale at

some point your costs don't fall in

lower you can't use any more mass

production techniques and so it levels

off that's called constant returns of

scale and eventually as you're producing

so much stuff your long run costs go

back up again your average costs go back

up and that's called disarms the scale

again that's the idea of the long run

costs long run costs are these short run

costs look like those now in this unit

you're going to be introduced the idea

of the theory of the firm which shows

you these cost curves except now with

some Revenue curves on top you start off

with perfect competition the idea that

there are many small firms thousands of

firms they all have the same exact

products they have low barriers so other

firms can enter really easy or exit and

the most important one they are price

takers that means they got to take the

price that's set by the market so that

gives you the graph the graph we already

learned back in unit 2 supply and demand

there it is an individual firm looks

like this it starts off the horizontal

demand curve that's equal to the

marginal revenue because if they want to

sell another unit they don't have to

change the price the price is set so

horizontal demand curve and which is the

marginal revenue curve which is Mr darp

if you've seen that before then you take

your cost curves bam throw your cost

curves on there now you can spot if

there's profit or a long run or making a

loss these Concepts you have to be able

to draw as well probably for a free

response make sure you recognize this is

the idea of profit that is the idea of a

loss and that is the idea of the long

run this is also when you're introduced

the most important Concept in all of my

microeconomics you produce where Mr

equals MC you get a tattoo on your arm

produce Mr equals MC that tells you

exactly how much to produce whether

you're Monopoly monop competition

perfect competition you always produce

where Mr equals MC because if you

produce or the marginal cost is greater

than the marginal revenue then you're

not maximizing profit if you produce

where the marginal cost is less than

marginal revenue again you're not

maximizing profit you can still earn

more profit so produce the same spot

everywhere every time Mr equals MC don't

forget it another skill you need to be

able to do is actually do the

calculations of average total cost

average fixed cost do those things and

then figure out how many units you

should produce so calculate the marginal

cost and figure out they gave you the

price how many un they should produce

and how much profit you're actually

making so you should be able to use the

chart to maximize Profit just as much as

using a graph now let's go back to that

loss notice the ATC is above the price

which makes sense if the price is down

here and the average total cost is

higher that means you're making a loss

per unit now if your loss gets big

enough you should shut down means you

tell your workers to go home and don't

produce anything at all because you

rather have your fixed cost be your loss

as to a bigger cost bigger than your

fixed cost the rule is this if the price

Falls below AVC you should shut down

it's called the shut down rule one more

time the Only Rule that trumps The

Profit maximizing rule is the shutdown

rule so what that means is that marginal

cost is actually a supply curve the

marginal cost upward sloping curve is a

supply curve you've been drawing ever

since back in unit 2 also you should

know not all of it not all of that

supply curve own the portion that's

above the ABC cuz if the price Falls

below ABC you shut down you don't

produce anything at all now let's go

back to the long run graph really

quickly you remember this this is the

idea of long run equilibrium total

revenue equals total cost that means

they're making no profit remember

there's two types of profit economic

profit and accounting profit in this

case they're making no economic profit

they're not cover they're not making

money up and above their opportunity

cost their total revenue equals their

total cost including their explicit

costs and implicit cost their

opportunity costs in other words this is

not a bad thing this means they're

breaking even they can't make more money

doing something else and they're not

losing any money this is the idea of a

normal profit but they are making

positive accounting profit now the

question is how does it look like this

well take a look in the short run here's

we're going to do short run to Long Run

they're making profit what happens well

firms because there's low barriers jump

in Supply shifts to the right lowering

the price back down boom long run you

can go the same way with a loss so

here's the loss firms going to leave

when they leave shift in the supply

curve to the left price goes back up or

it goes back to uh new long run bam long

run now the last thing in this unit is

the idea of efficiency remember there's

two different types productive and

allocative perfect competition in the

long run has both they're producing at

the productively efficient quantity

which means they're producing the lowest

ATC their cost are the lowest they can

be and they're also allocatively

efficient or socially optimal because

they're producing where the marginal

cost hits the demand in other words

people are willing to pay or the price

people are willing to pay exactly what

the marginal cost equals uh that tells

you the society actually wants those

units produce right if I'm want to pay

$10 and it cost you $10 to produce it

you produce the right amount if I'm want

to pay $10 and it cost you $20 to prod

it then you obviously produce the wrong

quantity again that's the idea of

efficiency remember efficiency has more

to do with Society than the firm so a

monopoly is not efficient not because

they're not making profit and doing well

for themselves but they're not efficient

with society's resources unit three by

far is the hardest unit it's when you're

introduced to all these cost curves you

got to practice make sure you get it I

give this a nine out of 10 difficulty

level spend your time practice this unit

now here we go in unit four remember

there's four Market structures perfect

competition and three others in this

unit we're going to going to learn the

three others we've got monopolies

oligopolies monopol competition so let's

jump into these things first thing

Monopoly obviously one firm they've got

a unique product and uh there's High

barriers and the market is the firm

which makes the graph a whole lot easier

there's not two side-by-side graphs

there's one graph we've got a downward

opening demand and a marginal revenue

that's less than that for all imperfect

competition monopolies monopol

competition the reason why is if they

want to sell another unit they got to

lower the price they're not price takers

they're price makers you should also

recognize the elastic and the inelastic

ranges of this demand curve over on this

side that's the elastic range because

when the price is falling total revenue

is going up and when the price is going

down on this side total revenue is going

down that's the idea of the total

revenue test now we take the cost curves

that we've already learned put them on

the Monopoly you identify the profit

maximizing quantity Mr equal MC charge a

price up to demand and now you can spot

the profit the total revenue and the

total cost you should also be able to

draw this using a loss now that's a

monopoly there's also a natural monopoly

the idea that there's smarter to have

just one firm producing it because at

the quantity soci optimal we've got the

average total cost is still falling that

means they can produce at the lowest

possible cost now that's the idea of

Regulation the government can come in

and regulate this right here is

unregulated that's if the firm is left

to its own device it will choose to

produce where marles MC maximize profit

right here is the idea of socially

optimal where there be no deadweight

loss and right here's something called

Fair return that's the idea that they're

making no economic profit they're

breaking even right there where the

price hits the ATC you should also be

able to recognize consumer surplus for

the Monopoly and also the dead weight

loss now here's a trick really quick

dead weight loss will always point to

socially optimal remember socially

optimal is well marginal cost hits the

demand or hits the price so right there

is what we want produce and a Monopoly

underproduce Monopoly charges a higher

price and produces less output so right

there is the amount Society actually

wants the dead weight loss will always

point to it like that and it shows you

what we should do we should be producing

more output Society wants more now the

same concept of of pointing to social

optimal applies to ceilings and Floors

and laters will find out with positive

and negative externalities you might

also see another type of Monopoly this

is a price discriminating Monopoly this

means they're charging multiple prices

not just one price the marginal revenue

actually becomes the demand curve so

they're produce where Mr equal MC but

they're going to charge multiple

different prices that means the profit

gets a whole lot bigger consumer surplus

disappears and deadweight loss

disappears they're producing actually

the socially optimal quantity then you

start learning about oligopolies the

idea that there's many small firms

who've got a really high barriers and

they have strategic pricing they got to

worry about the pricing of the other guy

you can see we've got a game theory

Matrix right here you should be able to

spot dominant strategy for each one of

the two different firms and identify

something called Nash equilibrium I'm

not going to do the details now but I

got a ton of videos that show you

actually how to do that skill also

understand the idea of monopolistic

competition this is the idea that it's

like a monopoly because they're a price

maker but it's like perfect competition

because firms can enter right so what

you have is the same graph as before

Monopoly graph in this case making

profit but it doesn't stay there right

right because firms can enter so in the

long run firms will enter when they

enter that means the demand's going to

go down demand's going to fall this

monopolis competitive firm because now

they have to share more customers with

the new firms that jumped in so now

we're in the long run that's a graph to

do that's monopolis competition and long

run equilibrium unit four is a bear

there's the Monopoly graph a lot of

different concepts you have to learn but

since you already did perfect

competition it should help you out in

fact you should actually learn more

about perfect competition when you do

monopolies because it kind of puts

Concepts together in your brain I give

an eight out of 10 difficulty okay now

we're talking about the resource Market

unit five it talks about supply and

demand now for labor remember just like

we mentioned before in the circular flow

model businesses sell products in the

product Market but they also hire

resources in the resource market so now

the demand is the demand by firms for

workers and Supply is by you and me so

me and you are supplying individuals are

supplying and businesses are demanding

the first concept you have to know is

the idea of derive demand the demand for

labor depends on the product that that

labor produces so if the demand goes up

for pizza then the demand's going to go

up for pizza delivery drivers that's the

idea of derived demand you should also

be able to recognize shifts in this

curve and the idea of minimum wage

minimum wage is a binding floor and so

the price goes up in this case the wage

goes up the Quan demand Falls the

quanity supply increases and we have

unemployment of resources also recognize

the idea of MRP and MRC the first thing

you have to be able to do is do the

chart right here you have the number of

workers you have the total they produce

you learn this back in unit 3 but then

you have to calculate the additional

Revenue these workers generate you do

that by doing the marginal product then

you calculate the marginal revenue

product the additional Revenue they

generate what you do is you multiply the

product the additional output the

marginal product times the price and

then you compare that to the marginal

resource cost which is the cost of

highing number worker now in a perfect

competitive uh resource Market each

worker costs the same and that tells you

that you should hire a certain number of

workers now that concept also applies to

a graph you take that chart put on a

graph you get this side-by-side graphs

we've got that market graph from before

horizontal supply curve which equals the

marginal resource cost and a downward

sloping marginal revenue product because

each worker is worth less and less

Revenue to your company you hire where

MRP hits MRC just like before instead of

producing now though we're hiring it's

important to see that a perfect

competitive firm in the resource Market

is just the flip version of a perfect

competitive firm in the product Market

we have a horizontal curve except now at

Supply and a downward sloping curve as

opposed to an upward sloping curve from

before so if you can draw one just turn

around and flip it and draw the other

one now that same concept applies to

something called A monopsony a monopsony

is a monopoly for labor so instead of

having a downward demand curve and a

downward Mr that's below it we have an

upward soping supply curve and an MRC

that's above it the reason why is they

can't wage discriminate when they hire

another worker they're going to charge

that worker the wage and the workers

they were paying less the higher wage so

the MRC is actually higher they're going

to hire where MRP hits MRC always except

they're going to pay pay a wage below uh

the down to the supply curve what people

are actually willing to work for

monopsony graph now the last Concept in

this unit is the idea the least cost

rule this is like margin utility except

now we're talking about marginal product

you have two different resources labor

and machines and you're trying to figure

out what's the right combination of

hiring and the idea is you have to

calculate the additional output that

each one of these generates divided by

the price this puts them again in like

terms so I want to know what's the

additional output I get from another

unit of Labor and what's the price of

that labor what's the additional output

from another machine or another Capital

divided by the price of that machine if

they're equal perfect I'm got the least

possible cost if one's higher I should

keep doing that one right and that

number is going to fall because it's

diminishing marginal returns and right

that's going to fall if this one's

higher than I do that one instead and

this is called the least cost rule that

is the equation now unit five is

actually pretty short and it's actually

kind of easy but the problem is is

different than all the other units we

are looking at supply and demand but

we've never really seen a horizontal

supply curve very often so I give this

one a six out of 10 difficulty only

because it's the one that students

haven't often they often forget right

they often forget there's really very

few graphs here and just one major skill

figure out how many workers you can hire

okay the last unit unit six we talk

about market failures market failures

the idea the free market is awesome it's

great but sometimes it fails it ends up

producing the wrong stuff the Invisible

Hand of the free market ends up getting

the wrong quantity and the socially

optimal quantity is different than what

uh the free market it's actually

providing the first one is the idea of

public goods public goods have two

characteristics number one shared

consumption or what's called non-rivalry

when I use it you can use it we can all

use it your consumption of it doesn't

destroy it for me and most importantly

this idea of non-exclusion you cannot

exclude people from enjoying it uh if

they didn't pay their taxes so

non-exclusion shared consumption mean

that it's a true public good obviously

the free Market's not going to provide

it if they can't get people to buy and

pay for it if you know you can't exclude

people from enjoying the benefits free

market can't make it cuz they can't make

profit so the government's going to step

it in said the next thing you're going

to learn is the idea of externalities

externalities is when there's additional

cost or benefits on some of the person

so the free market assumes that the

people who buy and sell things to each

other are paying all the costs and

receiving all the benefits but what if

somebody else pays those costs or

receives those benefits well that gives

you the idea of negative externalities

and positive externalities a negative

externality is when there's additional

cost on another person notice we have

two cost curves one's the marginal

private cost the other one's the

marginal social cost and that tells you

the social costs are above the private

cost the firm's not recognizing these

additional costs you've got a qualtity

quantity free market and right here's

the quantity socially optimal the free

Market's messing it up so where is dead

weight loss well it's right there notice

it's pointing to socially optimal great

positive externality is the idea there's

additional benefits so not two cost

curves but two benefit curves we've got

a demand curve down here which is the

marginal private benefit we also have a

marginal social benefit that's right

there and that tells you that Society

wants more of this this but the free

market is not recognizing those

additional benefits to other people so

again we've got a quantity free market

quantity soci optimal free Market's

messing it up and the benefits are

spilling over to some other person the

deadweight loss is right here to solve

the problem you can do a perun subsidy

to either consumers or producers to

produce more by the way for a negative

externality you want to do a perun tax

to get them to produce less the last

thing you learn is the idea about the

Loren curve and the idea of income

inequality it's a graph looks like this

you've got the percent of families

percent of income and this diagonal line

right there tells you perfect equality

the actual curvy curve line right there

shows actual distribution of income the

bigger the ba banana I tell my students

the banana graph the bigger the banana

the more income inequality you can also

learn about the genie coefficient and

actually calculate the area of a

relative to the area of A and B combined

the last thing you learn here is the

idea of types of taxes there's three

different types Progressive regressive

RVE proportional now $2 tax on consumers

$2 tax on all consumers is actually a

regressive tax because $2 is a larger

percent income for poor people so even

even though everyone's paying the same

dollar amount they're paying different

percents of their income so a

progressive tax means uh rich people pay

a higher percent of their income like a

income tax in the United States uh

proportional means they pay the same

percent of income like everyone pays 10%

of their income and regressive tax is

the idea that poor people pay a higher

percent of income so a $2 tax although

it seems Progressive it's not it's

regressive because poor people pay a

higher percent of their income when they

pay just $2 unit six is actually pretty

easy because it's just the application

of supply and demand which you learned

earlier it's got a few definitions uh

there's not that much to do calculation

wise so I give this a four out of 10

difficulty level to finish off the class

hey thank you so much for watching this

video I wish you all the best of luck on

the AP test or on your big final exam

hey you're going to do awesome okay

thanks for watching till next time