Essential Graphs for Microeconomics
Basic Economic Concepts
Production Possibilities Curve
Good X A
B Concepts:
Points on the curve-efficient
W Points inside the curve-inefficient
C Points outside the curve-unattainable
with available resources
Gains in technology or resources
F D favoring one good both not other.
E
Good Y
Nature & Functions of Product Markets
Demand and Supply: Market clearing equilibrium
P
S Variations:
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
Pe Pe
D D
QD Qe QS Q QS Qe QD Q
Floor Ceiling
• Creates surplus • Creates shortage
• Qd<Qs • Qd>Qs
, Consumer and Producer Surplus
P
S
Consumer
surplus
Pe
Producer
surplus D
Qe Q
Effect of Taxes
A tax imposed on the BUYER-demand A tax imposed on the SELLER-supply
curve moves left curve moves left
elasticity determines whether buyer or elasticity determines whether buyer
seller bears incidence of tax or seller bears incidence of tax
shaded area is amount of tax shaded area is amount of tax
connect the dots to find the triangle connect the dots to find the triangle
of deadweight or efficiency loss. of deadweight or efficiency loss.
Price
Price
buyers
buyers
pay S2
pay P
P
S Price S1
Price w/o
w/o tax
tax
D1 D1
Price Price
sellers
D2 sellers
receive receive Q
Q
Theory of the Firm
Short Run Cost
AFC declines as output increases
P/C MC AVC and ATC declines initially, then
ATC
reaches a minimum then increases (U-
AVC shaped)
MC declines sharply, reaches a
minimum, the rises sharply
MC intersects with AVC and ATC at
minimum points
When MC> ATC, ATC is falling
AFC When MC< ATC, ATC is rising
There is no relationship between MC and
Q AFC
Basic Economic Concepts
Production Possibilities Curve
Good X A
B Concepts:
Points on the curve-efficient
W Points inside the curve-inefficient
C Points outside the curve-unattainable
with available resources
Gains in technology or resources
F D favoring one good both not other.
E
Good Y
Nature & Functions of Product Markets
Demand and Supply: Market clearing equilibrium
P
S Variations:
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
Pe Pe
D D
QD Qe QS Q QS Qe QD Q
Floor Ceiling
• Creates surplus • Creates shortage
• Qd<Qs • Qd>Qs
, Consumer and Producer Surplus
P
S
Consumer
surplus
Pe
Producer
surplus D
Qe Q
Effect of Taxes
A tax imposed on the BUYER-demand A tax imposed on the SELLER-supply
curve moves left curve moves left
elasticity determines whether buyer or elasticity determines whether buyer
seller bears incidence of tax or seller bears incidence of tax
shaded area is amount of tax shaded area is amount of tax
connect the dots to find the triangle connect the dots to find the triangle
of deadweight or efficiency loss. of deadweight or efficiency loss.
Price
Price
buyers
buyers
pay S2
pay P
P
S Price S1
Price w/o
w/o tax
tax
D1 D1
Price Price
sellers
D2 sellers
receive receive Q
Q
Theory of the Firm
Short Run Cost
AFC declines as output increases
P/C MC AVC and ATC declines initially, then
ATC
reaches a minimum then increases (U-
AVC shaped)
MC declines sharply, reaches a
minimum, the rises sharply
MC intersects with AVC and ATC at
minimum points
When MC> ATC, ATC is falling
AFC When MC< ATC, ATC is rising
There is no relationship between MC and
Q AFC
