Crash Course AP Microeconomics

Perfect Competition

buyers and sellers have no influence over price

Determinants of Supply

cause supply to increase or decrease technology, related prices, input prices, taxes

Inelastic

change in quantity < change in price

Elastic

change in quantity is greater than change of price

Price Discrimination

charge everyone different prices

Marginal Cost (MC)

cost of producing an additional unit of output

Law of Increasing Marginal Cost

cost of producing incurs a greater cost than the previous unit

Negative Externality

cost on someone else; not buyer or seller

Marginal Social Cost

cost to society of producing an additional unit of output

Interdependence

decisions made on predictions of what others will do

Derived Demand

demand for the factors of production

Normal Good

demand varies, luxury items

Shortage

demand> supplied

Producer Surplus

difference between equilibrium price and price producers accept

Consumer Surplus

difference between equilibrium price and the price consumers are actually willing to pay

Barriers to Entry

discourages new firms from entering the market

Prisoner's Dilemma

dominant strategy where no one maximizes profit

Proportional Tax

equal taxes for all

Factor Market

factors of production are bought by firms and sold by households

Determinants of Demand

factors that cause demand to increase or decrease market size, expected prices, related prices, income, consumer tastes

Oligopoly

few firms dominate

Non-Excludable

free rider

Public Good

good or service provided by government

Substitute Goods

goods used in place of one another

Patent

government protection to be sole producer of thing

Lorenz Curve

graph that shows relative equality of income or wealth distribution

Collusion

group firm agreement to set prices together rather than compete

Cartel

group of firms form functional monopoly illegal

Price Elasticity of Supply

% # supplied/ % $ change

Income Elasticity of Demand

% change # demanded/ % change income

Cross-Price Elasticity

% demand of good/ % $ of another product

Price Elasticity of Demand

% # demanded/ % $ change

Excess Capacity

# perfectly competitive market produces compared to # monopolistically competitive firms produce

Total Revenue

$ x # sold

Unit Elastic

% # = % $ change

Supply Curve

/

Utility Maximization Rule

MUx/ Px = MUy/ Py

Demand Curve

\

Marginal Revenue Product

added revenue gained by employing another factor of labor

Long Run

all inputs are varied with entering and exiting of markets

Socially Optimal

allocatively efficient level of output

Marginal Benefit

benefit of consuming one extra unit changes slope of total benefit

Marginal Social Benefit

benefit to society of consuming another unit

Positive Externality

benefit to someone not buyer or seller leads to underproduction

Productive Efficiency

least amount of waste with the most production

Price Ceiling

legal maximum price

Price Floor

legal minimum price

Economy of Scale

long-run average total cost declines as firm size increases

Constant Returns to Scale

long-run average total cost remains constant despite growing firm size

Diseconomy of Scale

long-run average total costs increases as firm's size increases

Regressive Tax

low income, more taxes

Product Differentiation

make products look different

Monopolistic Competition

many firms compete

Allocative Efficiency

marginal benefit = marginal cost

Diminishing Marginal Returns

marginal product is decreasing while total product is increasing

Equilibrium

middle

Progressive Tax

more income, more taxes

Income Effect

more money, more spend

Diminishing Marginal Utility

more product, less satisfaction

Inferior Good

necessary items

Nash Equilibrium

no strategy changing after considering other players' choices

Monopsony

one consumer

Price Leadership Model

one firm sets price for industry

Short Run

one input is constant

Rival

one person consuming prevents another from consuming

Payoff Matrix

outcome of decisions made by producers

Production Function

output caries as inputs are added

Subsidy

payment from government made to buyer or seller of good

Technological Monopoly

possession of patent prevents others from competing in market for good

Law of Demand

price and quantity demanded are related

Law of Supply

price and quantity supplied related

Marginal Private Benefit

private benefit of consumption of one more unit

Marginal Private Cost

private cost of producing an additional output

Comparative Advantage

produce a good at a lower opportunity cost

Absolute Advantage

produce more of a good than another firm with the same amount of inputs

Marginal Cost

production of one extra unit changes slope of total cost

Law of Increasing Opportunity

production of one good increases, sacrifice production of other good

Homogenous Products

products are identical

Elasticity

quantity changes, price changes

Gini Coefficient

range between 0 and 1

Terms of Trade

rate two people trade two goods

Marginal Utility

satisfaction a consumer gets

Externality

side-effect of production/ consumption

Opportunity Cost

something given up in exchange for something else

Game Theory

strategic decision-making

Substitution Effect

substitute lower price items for higher priced items

Total Cost

sum of fixed and variable costs

Surplus

supplied> demanded

Price Taker

take the price as it is

Wage Taker

take the wages provided

Estate Tax

tax on value of person's property after death

Total Revenue Test

tests price elasticity of demand

Accounting Profit

total $ - production cost

Increasing Marginal Returns

total and marginal product increase as input is added

Marginal Factor Cost

total cost/ # of factor (labor)

Decreasing Marginal Returns

total profit and marginal profit decrease as input is added