© 2026 Jessica Li. All Rights Reserved.
No part of this publication may be reproduced, distributed, or transmitted in any form or by any means,
including photocopying, recording, or other electronic or mechanical methods, without the prior written
permission of the publisher.
Unit 1
Scarcity: unlimited demand and limited resources
Factors of production (CELL): capital, entrepreneurship, land, labor
3 main questions:
● What to produce, how to produce, who gets it
Economy Systems
● Command: government makes all decisions, central planning
● Market: decisions are made by firms via prices and property rights
● Mixed: a blend of both
PPC shows how resources can be allocated to 2 products
● Curves outward (concave): opportunity cost increases, resources are not perfectly adaptable
● Curves inward (convex): opportunity cost decreases, specialization of labor
● Straight: constant opportunity cost, resources are perfectly adaptable
Advantage
● Absolute advantage: can produce more
● Comparative advantage: lower opportunity cost
○ Sometimes a question will ask about time needed to complete, which is the opposite
● Specialization: both countries produce goods in which they have a comparative advantage
● Terms of trade: price between the two opportunity costs
Economic profit: subtracts both explicit and implicit costs
Accounting profit: only accounts for explicit costs
Marginal analysis
● You should do something as long as MB>=MC
● Spend money to equalize marginal utility per dollar
● Diminishing marginal utility: the more you consume, the more marginal utility decreases
Microeconomics: individuals and firms
Macroeconomics: the whole economy
Unit 2
Law of demand: price goes up, quantity demanded goes down
● Downward sloping because of the substitution effect, the income effect, and the law of
diminishing marginal utility
○ Substitution effect: when the price of a good falls, consumers buy it instead of substitutes
○ Income effect: when the price falls, your real income (purchasing power) increases, so
now you can afford more of a good
● Changing the price changes quantity demanded, does not change the curve
Shifters of demand (TRIBE): tastes, related goods, income, buyers, expectations of future prices
Law of supply: price goes up, quantity supplied goes down
● Upward sloping because of the law of increasing opportunity cost and diminishing marginal
returns
Shifters of supply (ROTTEN): resource prices, other goods’ prices, taxes and subsidies, technology,
expectations of profit, number of sellers
, Equilibrium: Qs=Qd
● Surplus: Qs>Qd, shortage: Qs<Qd
● Supply/demand shift left=decrease, shift right=increase
Elasticity: % change in price/% change in supply or demand
● Price elasticity of demand (PED): how much consumers react to a price change
● Total revenue test: if P price rises and total revenue rises, it’s inelastic; if price rises and total
revenue decreases, it’s elastic
● Income elasticity: positive for normal goods, negative for inferior goods
● Cross price PED
○ Positive: substitutes
○ Negative: complements
Government intervention
● Price ceiling: shortage, CS up, PS down
● Price floor: surplus, PS up, CS down
● DWL: loss of total surplus caused by a market distortion
● Taxes: A more inelastic curve pays a greater share of the tax
Action Affects Changes Q Changes Profit
Lump-Sum Tax FC, ATC No (MC stays same) Decrease
Per-Unit Tax VC, MC, ATC Yes (decreases) Decrease
Lump-Sum Subsidy FC, ATC No Increase
Per-Unit Subsidy VC, MC, ATC Yes (increases) Increase
Surplus
● CS: below demand above equilibrium
● PS: above supply below equilibrium
Global trade
● All tariffs create deadweight loss and increase CS
○ Allocative efficiency means no tariffs
● Shortage: Qd>Qs, Qs = level of domestic production
Unit 3
Production function
● Short run: at least one resource is fixed, there are fixed costs and variable costs
● Long run: all resources are variable, no fixed costs
● Diminishing marginal returns: when you add variable resources to fixed resources, the additional
output generated by each worker will decrease
Short-run costs
● TC=TFC+TVC, ATC=AFC+AVC
● MC: The cost of producing one more unit, shaped like a check mark
○ Intersects ATC and AVC at their lowest points
Long-run costs
No part of this publication may be reproduced, distributed, or transmitted in any form or by any means,
including photocopying, recording, or other electronic or mechanical methods, without the prior written
permission of the publisher.
Unit 1
Scarcity: unlimited demand and limited resources
Factors of production (CELL): capital, entrepreneurship, land, labor
3 main questions:
● What to produce, how to produce, who gets it
Economy Systems
● Command: government makes all decisions, central planning
● Market: decisions are made by firms via prices and property rights
● Mixed: a blend of both
PPC shows how resources can be allocated to 2 products
● Curves outward (concave): opportunity cost increases, resources are not perfectly adaptable
● Curves inward (convex): opportunity cost decreases, specialization of labor
● Straight: constant opportunity cost, resources are perfectly adaptable
Advantage
● Absolute advantage: can produce more
● Comparative advantage: lower opportunity cost
○ Sometimes a question will ask about time needed to complete, which is the opposite
● Specialization: both countries produce goods in which they have a comparative advantage
● Terms of trade: price between the two opportunity costs
Economic profit: subtracts both explicit and implicit costs
Accounting profit: only accounts for explicit costs
Marginal analysis
● You should do something as long as MB>=MC
● Spend money to equalize marginal utility per dollar
● Diminishing marginal utility: the more you consume, the more marginal utility decreases
Microeconomics: individuals and firms
Macroeconomics: the whole economy
Unit 2
Law of demand: price goes up, quantity demanded goes down
● Downward sloping because of the substitution effect, the income effect, and the law of
diminishing marginal utility
○ Substitution effect: when the price of a good falls, consumers buy it instead of substitutes
○ Income effect: when the price falls, your real income (purchasing power) increases, so
now you can afford more of a good
● Changing the price changes quantity demanded, does not change the curve
Shifters of demand (TRIBE): tastes, related goods, income, buyers, expectations of future prices
Law of supply: price goes up, quantity supplied goes down
● Upward sloping because of the law of increasing opportunity cost and diminishing marginal
returns
Shifters of supply (ROTTEN): resource prices, other goods’ prices, taxes and subsidies, technology,
expectations of profit, number of sellers
, Equilibrium: Qs=Qd
● Surplus: Qs>Qd, shortage: Qs<Qd
● Supply/demand shift left=decrease, shift right=increase
Elasticity: % change in price/% change in supply or demand
● Price elasticity of demand (PED): how much consumers react to a price change
● Total revenue test: if P price rises and total revenue rises, it’s inelastic; if price rises and total
revenue decreases, it’s elastic
● Income elasticity: positive for normal goods, negative for inferior goods
● Cross price PED
○ Positive: substitutes
○ Negative: complements
Government intervention
● Price ceiling: shortage, CS up, PS down
● Price floor: surplus, PS up, CS down
● DWL: loss of total surplus caused by a market distortion
● Taxes: A more inelastic curve pays a greater share of the tax
Action Affects Changes Q Changes Profit
Lump-Sum Tax FC, ATC No (MC stays same) Decrease
Per-Unit Tax VC, MC, ATC Yes (decreases) Decrease
Lump-Sum Subsidy FC, ATC No Increase
Per-Unit Subsidy VC, MC, ATC Yes (increases) Increase
Surplus
● CS: below demand above equilibrium
● PS: above supply below equilibrium
Global trade
● All tariffs create deadweight loss and increase CS
○ Allocative efficiency means no tariffs
● Shortage: Qd>Qs, Qs = level of domestic production
Unit 3
Production function
● Short run: at least one resource is fixed, there are fixed costs and variable costs
● Long run: all resources are variable, no fixed costs
● Diminishing marginal returns: when you add variable resources to fixed resources, the additional
output generated by each worker will decrease
Short-run costs
● TC=TFC+TVC, ATC=AFC+AVC
● MC: The cost of producing one more unit, shaped like a check mark
○ Intersects ATC and AVC at their lowest points
Long-run costs
