AP Microeconomics Review Kit

A unit-by-unit review of every AP Micro topic — key concepts, must-know formulas, the traps graders see most often, and links to interactive practice. Written by a PhD economist. Free, and no email required to read.

Exam structure at a glance

Section I

60 multiple-choice questions — 70 minutes — 66.67% of score

Section II

3 free-response questions (1 long, 2 short) — 60 minutes — 33.33% of score

Unit 1 — Basic Economic Concepts(12–15% of the exam)
Unit 2 — Supply and Demand(20–25% of the exam)
Unit 3 — Production, Cost, and Perfect Competition(22–25% of the exam)
Unit 4 — Imperfect Competition(15–22% of the exam)
Unit 5 — Factor Markets(10–13% of the exam)
Unit 6 — Market Failure and the Role of Government(8–13% of the exam)

Unit 1 — Basic Economic Concepts

12–15% of the exam

Key concepts

•Scarcity, opportunity cost, trade-offs
•Production Possibilities Curve (PPC/PPF)
•Comparative vs. absolute advantage; terms of trade
•Positive vs. normative economics
•Economic systems (market, command, mixed)

Must-know formulas

Opportunity cost = what you give up $\div$ what you gain
Comparative advantage: lower opportunity cost (not lower absolute cost)

Common traps

!Confusing absolute advantage (more output per input) with comparative advantage (lower opportunity cost).
!Forgetting that points inside the PPC are inefficient, points on it are efficient, and points outside are unattainable (without growth).
!Mixing up 'scarcity' (universal) with 'shortage' (a market outcome at a specific price).

Unit 2 — Supply and Demand

20–25% of the exam

Key concepts

•Law of demand / supply; determinants of each
•Shifts vs. movements along a curve
•Market equilibrium; disequilibrium (shortage/surplus)
•Consumer and producer surplus
•Price ceilings, price floors, taxes, subsidies
•Price, income, and cross-price elasticity

Must-know formulas

Midpoint elasticity: $E_{d} = \frac{Δ Q / Q ˉ}{Δ P / P ˉ}$
$C S = \frac{1}{2} \times Q^{*} \times (a - P^{*})$ ; $P S = \frac{1}{2} \times Q^{*} \times (P^{*} - c)$ for linear D/S
Per-unit tax: $Q_{t} = \frac{a - c - t}{b + d}$ ; $D W L = \frac{1}{2} \times t \times (Q^{*} - Q_{t})$

Common traps

!Saying 'demand fell' when price rose — that's a change in quantity demanded, not demand.
!Treating a non-binding price control as if it had the usual shortage/surplus effect. Above eq is non-binding for a ceiling; below eq is non-binding for a floor.
!Confusing tax revenue with deadweight loss. Tax revenue is a transfer. DWL is surplus lost to everyone.

Practice and deeper explanations

Supply & demand practice →Price controls practice →Elasticity calculator →Surplus calculator →Deadweight loss calculator →Why ceilings cause shortages →

Unit 3 — Production, Cost, and Perfect Competition

22–25% of the exam

Key concepts

•Short-run vs. long-run; fixed vs. variable inputs
•Total, marginal, and average product; diminishing returns
•TC, TFC, TVC, ATC, AVC, AFC, MC
•Economic vs. accounting profit
•Perfect competition: firm is a price taker; $P = M R = A R$
•Shut-down rule: shut down in SR if $P < A V C$ ; exit in LR if $P < A T C$
•Long-run equilibrium: $P = M C = min A T C$ , zero economic profit

Must-know formulas

Profit $= T R - T C = (P - A T C) \times Q$
$M C = \frac{Δ T C}{Δ Q}$ ; $A T C = \frac{T C}{Q}$ ; $A V C = \frac{T V C}{Q}$
$M R = \frac{Δ T R}{Δ Q}$ ( $= P$ under perfect competition)

Common traps

!Stopping the firm at $P = A T C$ instead of $P = M C$ . Profit-max is always $M R = M C$ (for $P > A V C$ in SR).
!Confusing the shut-down rule ( $P < A V C$ , short-run) with the exit rule ( $P < A T C$ , long-run).
!Forgetting that zero economic profit in LR does not mean zero accounting profit — it means normal profit.

Unit 4 — Imperfect Competition

15–22% of the exam

Key concepts

•Monopoly: one seller, $M R < P$ , barriers to entry
•Monopolistic competition: many firms, differentiated products
•Oligopoly: few firms, strategic interaction, game theory
•Price discrimination (1st/2nd/3rd degree)
•Nash equilibrium, dominant strategies, prisoners' dilemma

Must-know formulas

Monopoly profit-max: $M R = M C$ , price read off demand at $Q_{m}$
Monopoly $D W L = \frac{1}{2} \times (Q_{c} - Q_{m}) \times (P_{m} - M C)$ (linear case)
For linear demand $P = a - b Q$ : $M R = a - 2 b Q$ (twice the slope of demand)

Common traps

!Setting price equal to $M C$ for a monopolist. Monopoly price is $P_{m}$ , read off the demand curve at $Q_{m}$ — and $P_{m} > M C$ .
!Drawing MR below demand but forgetting it should cut the x-axis at exactly half the demand x-intercept (for linear demand).
!Forgetting that 1st-degree price discrimination removes DWL but transfers all surplus to the monopolist.

Practice and deeper explanations

Why monopolies create DWL →DWL calculator (tax/ceiling/floor) →

Unit 5 — Factor Markets

10–13% of the exam

Key concepts

•Derived demand; demand for labor comes from demand for output
•Marginal revenue product ( $M R P$ ) and marginal factor cost ( $M F C$ )
•Perfectly competitive labor market: hire where $M R P = W$
•Monopsony: single buyer, $M F C > W$ , hires where $M R P = M F C$ , pays off supply curve
•Least-cost input rule: $\frac{M P _{L}}{P _{L}} = \frac{M P _{K}}{P _{K}}$

Must-know formulas

$M R P = M P \times P$ (perfect competition in product market)
$M R P = M P \times M R$ (monopoly in product market)
Profit-max hiring: $M R P = M F C$

Common traps

!In a monopsony, reading the wage off the $M F C$ curve. The wage comes off the labor supply curve at the monopsony quantity — lower than the competitive wage.
!Forgetting that $M R P = M P \times M R$ for a firm with market power (not $M P \times P$ ).
!Missing that a binding minimum wage in a monopsony can both raise wages and increase employment.

Unit 6 — Market Failure and the Role of Government

8–13% of the exam

Key concepts

•Externalities (positive and negative); Pigouvian taxes and subsidies
•Public goods (non-rival, non-excludable); free rider problem
•Common resources; tragedy of the commons
•Lorenz curve, Gini coefficient
•Taxes: progressive, proportional, regressive

Must-know formulas

Socially optimal $Q$ : $M S B = M S C$
Gini = area between Lorenz curve and 45° line $\div$ total area below 45° line

Common traps

!Drawing MPB/MSB and MPC/MSC but not identifying the overproduction (negative externality) or underproduction (positive externality) gap clearly.
!Confusing 'Pigouvian tax' with just 'any tax'. The size must equal the marginal external cost at the socially optimal quantity.
!Treating public goods as just 'goods the government provides'. The definition is non-rival + non-excludable, full stop.

Last-week study plan

7 days out —Skim every unit above. Circle any concept where you can't immediately produce the definition or graph from memory.
5 days out — Re-draw the core graphs from scratch on paper: supply and demand with price controls, monopoly, perfect competition SR and LR, externalities, and monopsony. If any of them are fuzzy, open the matching practice page.
3 days out — Drill FRQs. Most FRQ points come from correctly labeling graphs and showing the right causal chain.
1 day out —Light review only. Sleep, hydrate, and re-read the "Common traps" blocks above.

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Exam structure at a glance

Table of contents

Unit 1 — Basic Economic Concepts

Unit 2 — Supply and Demand

Unit 3 — Production, Cost, and Perfect Competition

Unit 4 — Imperfect Competition

Unit 5 — Factor Markets

Unit 6 — Market Failure and the Role of Government

Last-week study plan