← Unit 2 · Microeconomics
Economics · Topic Cheatsheet

Unit 2 · Microeconomics

18 key results accumulated across 3 chapters.

Law of demand
Ch 1
Price ↑ → quantity demanded ↓ (income + substitution effects).
Law of supply
Ch 1
Price ↑ → quantity supplied ↑.
Movement vs shift
Ch 1
Price change → movement ALONG the curve; non-price factor → SHIFT of the curve.
Demand shifters
Ch 1
Income, related-good prices, tastes, expectations, # buyers.
Supply shifters
Ch 1
Costs, technology, # producers, taxes/subsidies, expectations.
Equilibrium
Ch 1
Where D meets S: market clears. Above → surplus; below → shortage.
PED
Ch 2
PED=% ΔQd% ΔP\text{PED} = \frac{\%\,\Delta Q_d}{\%\,\Delta P}
Elastic / inelastic
Ch 2
∣PED∣>1|PED|>1 elastic · =1=1 unit · <1<1 inelastic.
Determinants
Ch 2
Substitutes, necessity vs luxury, income share, time horizon.
Revenue rule
Ch 2
Elastic: price ↑ → revenue ↓. Inelastic: price ↑ → revenue ↑.
Indirect tax
Ch 3
Shifts supply up; raises P, lowers Q; incidence on the more inelastic side.
Subsidy
Ch 3
Shifts supply down; lowers P, raises Q.
Price ceiling / floor
Ch 3
Below eq. ⇒ shortage; above eq. ⇒ surplus.
Externalities
Ch 3
MSC=MPC+MEC,    MSB=MPB+MEBMSC = MPC + MEC,\;\; MSB = MPB + MEB
Efficiency at MSB=MSCMSB=MSC; gap ⇒ welfare loss.
Public good
Ch 3
Non-rival + non-excludable ⇒ free-rider problem ⇒ govt provision.
Information failures
Ch 3
Adverse selection (hidden info); moral hazard (hidden action).
Market power
Ch 3
Monopoly: MR=MC, P>MC ⇒ higher price, lower output, deadweight loss.
Equity vs equality
Ch 3
Gini 0→1; progressive tax & transfers redistribute.