College · Aligned to AP Microeconomics
Microeconomics Foundations (ECON 101) — study guide & practice questions
Supply, demand, elasticity, market structures, factor markets and market failure: full AP Micro scope.
Study guide
Scarcity, Opportunity Cost & the PPF
- Opportunity cost is the value of the next best alternative given up when making a choice — the true cost of any decision.
- The PPF shows efficient production trade-offs; comparative (not absolute) advantage is what makes trade beneficial to both parties.
Supply & Demand Fundamentals
- Law of demand: as price rises, quantity demanded falls, all else equal. A change in the good's own price moves along the curve; other factors shift it.
- Equilibrium is where supply meets demand; a price above it creates a surplus, a price below it creates a shortage.
Elasticity in Depth
- Price elasticity of demand = % change in quantity demanded ÷ % change in price; elasticity > 1 is elastic, < 1 is inelastic.
- Elastic demand: a price hike lowers total revenue. Inelastic demand: a price hike raises it. Cross-price and income elasticity classify substitutes/complements and normal/inferior goods.
Consumer Choice & Utility
- Diminishing marginal utility means each extra unit consumed adds less satisfaction than the last.
- A consumer maximizes utility by equalizing marginal utility per dollar across goods; consumer surplus is the gap between willingness to pay and price paid.
Producer Theory & Costs
- Diminishing marginal returns set in as more variable input is added to a fixed input; marginal cost crosses average total cost at its minimum.
- In the long run all inputs are variable; producer surplus is the gap between price received and the minimum a producer would accept.
Perfect Competition
- Many firms, identical products — each firm faces a horizontal (perfectly elastic) demand curve at the market price and is a "price taker.".
- Firms maximize profit where MR = MC; free entry/exit drives long-run economic profit to zero.
Market Power: Monopoly & Imperfect Competition
- Monopoly: a single seller with no close substitutes and high barriers to entry, restricting output and charging a higher price than competition would — creating deadweight loss.
- Monopolistic competition adds product differentiation to many-firm competition; oligopoly involves a few firms whose strategic interaction is studied with game theory.
Market Failure & Government Intervention
- Negative externalities (e.g. pollution) impose costs on third parties not reflected in the market price; public goods are underprovided due to free-riding.
- Price ceilings cause shortages, price floors cause surpluses, and taxes reduce trade below the efficient quantity, all creating deadweight loss.
Course modules
8 foundation modules free to read here; 1 AP-level and advanced module with Pro. Every module ends with a quiz in the app.
1. Scarcity, Opportunity Cost & the PPF Free
The foundational trade-offs every economy faces, and why specialization makes everyone better off.
Read the 4 lessons →2. Supply & Demand Fundamentals Free
The two curves that set prices, what shifts them, and how a market finds its balance.
Read the 4 lessons →3. Elasticity in Depth Free
How responsive buyers and sellers really are to price changes, and what that means for revenue.
Read the 4 lessons →4. Consumer Choice & Utility Free
How a rational consumer allocates a limited budget to maximize satisfaction.
Read the 4 lessons →5. Producer Theory & Costs Free
How firms' costs behave as output changes, and what separates the short run from the long run.
Read the 4 lessons →6. Perfect Competition Free
How price-taking firms decide how much to produce, and why profits vanish in the long run.
Read the 4 lessons →7. Market Power: Monopoly & Imperfect Competition Free
What happens to price, output, and efficiency when firms aren't simple price-takers.
Read the 4 lessons →8. Market Failure & Government Intervention Free
When markets don't produce the efficient outcome on their own, and what policy tools try to fix it.
Read the 4 lessons →9. Factor Markets & Income Distribution Pro · AP Micro · Unit 5
How firms decide how many workers to hire, how wages are set in competitive and monopsony labor markets, the least-cost input rule, and how inequality is measured.
Sample practice questions
From module 1, Scarcity, Opportunity Cost & the PPF. Pick your answers, then check them in the app, with an explanation for every question.
1. Why does the PPF typically bow outward (showing increasing opportunity cost)?
2. What does comparative advantage refer to?
Sample flashcards
4 of the cards in this course's deck. Tap a card to flip it.
Scarcity & ChoiceWhat is opportunity cost?
The value of the next best alternative given up when making a choice.
Supply & DemandState the law of demand.
As price rises, quantity demanded falls, all else equal — an inverse relationship shown as a downward-sloping demand curve.
Supply & DemandWhat causes a movement along the demand curve vs. a shift of the whole curve?
A change in the good's own price causes movement along the curve; a change in income, tastes, prices of related goods, or expectations shifts the entire curve.
ElasticityWhat does price elasticity of demand measure, and what does elasticity greater than 1 mean?
% change in quantity demanded divided by % change in price; elasticity greater than 1 means demand is elastic (quantity responds more than proportionally to price).
The full course is in LectureMate's Course Library: every module quiz with explanations, the complete flashcard deck with spaced repetition, and a 6-step strategy for AP Microeconomics questions. Foundation modules are free; AP-level and advanced modules need Pro.