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
