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AP Microeconomics Terms 2014 Flashcards

Terms in the 2014-2015 AP microeconomics glossary

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868444361Absolute AdvantageThe ability to produce more of a good than all other producers.1
868444362Absolute(or money) pricesThe price of a good measured in units of currency2
868444363accounting profitThe difference between total revenue and total explicit cosy3
868444365all else equalThe assumption that all other variables are held constant so that we can predict how a change in one variable affects a second. Also known as the "ceteris paribus" assumption4
868444366allocative effiencyProduction of the combination of goods and services5
868444367average fixed cost(AFC)Total fixed cost divided by output6
868444368Average product(APL) of laborTotal product divided by the labor employed7
868444369Average tax rateThe proportion of total income paid to taxes8
868444370Average total cost(ATC)Total cost divided by output9
868444371Average variable cost(AVC)Total variable cost divided by output10
868444372Capitalist market system(capitalism)An economic system based upon the fundamentals of private property, freedom, self-interest, and prices11
868444373CartelFirms that agree to maximize their joint profits rather than compete12
868444374Circular flow of economic activity(or circular of goods and services)A model that shows how households and firms circulate resources, goods, and incomes through the economy. This basic model is expanded to include the government and the foreign sector.13
868444375collusive oligopolyModels where firms agree to work together to mutually improve their situation14
868444376comparative advantageThe ability to produce a good at lower opportunity cost than all other producers15
868444377complementary goodsTwo goods that provide more utility when consumed together than when consumed separately16
868444378constant returns to scaleThe horizontal range of long-run average total cost where LRAC is constant over a variety of plant sizes17
868444379constrained utility maximizationGiven prices and income, a consumer stops consuming a good when the price paid for the next unit is equal to the marginal utility recieved18
868444380consumer surplusThe difference between a buyer's willingness to pay and the price actually paid.19
868444381cross-price elasticity of demanda measure of how sensitive the consumption of good X is to a change in the price of good Y20
868444382deadweight lossThe lost net benefit to society caused by a movement from the competitive market equilibrium.21
868444383demand curveShows the quantity of a good demanded at all prices22
868444384demand for laborShows the quantity of labor demanded at all wages. Labor demand for a firm hiring in a competitive labor market is MRPL.23
868444385demand scheduleA table showing quantity demanded for a good at all prices24
868444386derived demandDemand for a resource arising from the demand for the goods produced by the resources25
868444387determinants of demandthe external factors that shift demand to the left or right26
868444388determinants of supplythe external factors that influence supply. When these variables change, the entire supply curve shifts to the left or right27
868444389disequilibruimAny price where the quantity demanded does not equal the quantity suppiled28
868444390diseconomies of scaleThe upward part of the long-run average total cost curve where LRAC rises as plant size rises29
868444391domestic priceThe equilibrium price of a good in a nation without trade30
868444392dominant strategyA strategy that is always the best strategy to pursue, regardless of what a rival is doing31
868444393economic costsThe sum of explicit and implicit costs of production32
868444394economic growthThe increase in an economy's PPF over time33
868444395economic profitThe difference between total revenue and total economic cost34
868444396economicsThe study of how society allocates scarce resources35
868444397economies of scaleThe downward part of the long-run average total cost curve where LRAC falls as plant size rises36
868444398egalitarianismThe philosophy that all citizens should receive an equal share of the economic resources37
868444399elasticityMeasures the sensitivity, or responsiveness, of a choice to a change in an external factor38
868444400elasticity along the demand curveAt the midpoint of a linear demand curve, Ed=1. Above the midpoint demand is elastic, and below the midpoint demand is inelastic39
868444401excess capacityThe difference between the long run output in monopolistic competition and the output at minimum average total cost40
868444402excess demandThe difference between quantity supplied and quantity demanded. A shortage41
868444403excess supplyThe difference between quantity supplied and quantity demanded. A surplus42
868444404excise taxA per unit tax on a specific good or service43
868444405explicit costsDirect, purchased, out-of-pocket costs, paid to resource suppliers outside the firm. Also referred to as accounting costs44
868444406exportsGoods and services produced domestically but sold abroad45
868444407factors of productionInputs or resources that go into the production function to produce goods and services46
868444408firmAn organization that employs factors of production to produce a good or service that it hopes to profitably sell47
868444409fixed inputsProduction inputs that cannot be changed in the short run48
868444410four-firm concentration ratioThe sum of the market share of the four largest firms in the industry49
868444411free riderAn individual who receives the benefit of a good without incurring any cost for the good50
868444412free rider problemThe lack of private funding for a public good due to the presence of free riders51
868444413game theoryAn approach for modeling the strategic interactions of firms in oligopoly markets52
868444414Gini ratioA measure of income inequality. As the Gini ratio gets closer to zero, the more equally the income is distributed. As the Gini ratio gets closer to one, the more unequally the income is distributed.53
868444415human capitalThe amount of knowledge and skills that labor can apply to the work that they do54
868444416implicit costsIndirect, non-purchased, or opportunity costs of resources provided by the entrepreneur55
868444417importsGoods produced abroad but consumed domestically56
868444418incidence of taxThe division of a tax between consumers and producers57
868444419income effectDue to the higher price, the change in quantity demanded that results from a change in the consumer's purchasing power(or real income)58
868444420income elasticityA measure of how sensitive consumption of a good is to a change in consumers' income59
868444421inferior goodsA good for which demand decreases with an increase in consumer income60
868444422law of demandAll else equal, when the price of a good rises, the quantity demanded of that good falls61
868444423law of diminishing marginal returnsAs successive units of a variable input are added to a fixed input, beyond some point the marginal product declines62
868444424law of diminishing marginal utilityIn a given time period, as consumption of an item increases, the marginal(additional) utility from that item falls63
868444425law of increasing costsAs more of a good is produced, the greater is its opportunity(or marginal) cost64
868444426law of increasing marginal utilityIn a given time period, as consumption of an item increases, the marginal(additional) utility from that item falls65
868444427law of supplyAll else equal, when the price of a good rises, the quantity supplied of that good rises66
868444428least-cost ruleThe combination of labor and capital that minimizes total costs for a given production rate is where MP1/PL=MPK/PK67
868444429long runA period of time long enough for the firm to alter all production inputs, including the plant size68
868444430Lorenz curveA graphical device that shows how a nation's income is distributed across the nation's households69
868444431luxuryA good for which the proportional increase in consumption exceeds the proportional increase in income70
868444432marginalThe next unit, or increment of, an action71
868444433marginal analysisMaking decisions based upon weighting the marginal benefits and costs of that action. The rational decision maker chooses an action if the MB is greater than or equal to MC.72
868444434marginal benefit(MB)...The additional benefit received from the consumption of the next unit of a good or service73
868444435Marginal cost(MC)The additional cost of producing one more unit of output74
868444436marginal productivity theoryThe theory that a citizen's share of economic resources is proportional to the marginal revenue product of his or her labor75
868444437marginal product(MPL) of laborThe change in total product in resulting from a change in the labor unit76
868444438marginal resource cost(MRC)The change in a firm's total cost from the hiring of an additional unit of an input77
868444439marginal revenue product of labor(MPR)The change in a firm's total revenue from the hiring of an additional unit of input78
868444440marginal tax rateThe rate paid on the last dollar earned, calculated by taking the ratio of the change in the change in income79
868444441marginal utitilityThe change in an individual's total utility from the consumption of an additional unit of a good or service.80
868444442marketA group with buyers and sellers of a good or service81
868444443market economyAn economic system in which resources are allocated through the decentralized decisions of firms and consumers82
868444444market equilibruimExists the only price where the quantity supplied equals the quantity demanded. Or, it is the only quantity where the price consumers are willing to pay is exactly the price producers are willing to accept83
868444445market failureThe inability of the free market to allocate resources efficiently84
868444446market powerThe ability to set a price above the perfectly competitive level85
868444447monopolistic competitionA market structure characterized by a few small firms producing a differentiated product with easy entry into the market86
868444448monopolyA market structure in which one firm is the sole producer of a good with no close substitutes in a market power i.e. wage setter87
868444449monopsonyA factor market in which there is a sole firm that has market power88
868444450natural monopolyThe case where economies of scale are so extensive that is less costly for one firm to supply the entire range of demand than for multiple firms to share the market89
868444451necessityA good for which the proportional increase in consumption is less than the proportional increase in income90
868444452negative externalityThe existence of spillover costs upon third parties from the production of a good91
868444453noncollusive oligopolyModels of industries in which firms are competitive rivals seeking to gain at the expense of their rivals92
868444454nonrenewable resourcesNatural resources that cannot replenish themselves93
868444455normal goodsA good for which demand increases with an increase94
868444456normal profitThe opportunity cost of the entrepreneur's talents. Another way of saying the firm is earning zero economic profit95
868444457oligopolyA very diverse market structure characterized by a small number of interdependent large firms, producing either a standardized or differentiated product in a market with a barrier to entry.96
868444458opportunity costThe value of the sacrifice made to pursue a course of action97
868444459perfectly elasticIn this special case, the demand curve is horizontal, meaning consumers have an instantaneous and infinite response to a change in price98
868444460perfectly inelasticIn this special case, the demand curve is vertical and there is absolutely no response to a change in price.99
868444461positive externalityThe existence of spillover benefits upon third parties from the production of a good.100
868444462price ceilingA legal maximum price above which a product can't be sold101
868444463price discriminationThe sale of the same product to different groups of consumers at different prices102
868444464price elasticity of demandMeasures the sensitivity of consumers' quantity demanded for good X when the price of good X changes103
868444465price elasticity of supplyMeasures the sensitivity of producers' quantity supplied for good X when the price of good X changes.104
868444466price floorA legal minimum price below which the product cannot be sold105
868444467prisoner's dilemmaA game where the two rivals achieve a less desirable outcome because they are unable to coordinate their strategies106
868444468private goodsGoods that are both rival and excludable107
868444469producer surplusThe difference between the price received and the marginal cost of producing the good108
868444470productive effiencyProduction of maximum output for a given level of technology, into finished goods and services109
868444471production functionThe mechanism for combining production resources, with existing technology, into finished goods and services110
868444472production possibilitiesThe different quantities of goods that am economy can produce with a given amount of scarce resources111
868444473production possibility curveA graphical device that shows the combination of two goods that a nation can efficiently produce with available resources and technology112
868444474productivityThe quantity of output that can be produced per worker in a given amount of time113
868444475profit maximizing resource employmentThe firm hires a resource up to the point where MRP=MRC114
868444476progressive taxA tax where the proportion of income paid in taxes rises as income rises115
868444477proportional taxA tax where the proportion of income paid in taxes is constant no matter the level of income116
868444479protective tariffAn excise tax levied on an imported good that is produced in the domestic market so that it may be protected from foreign competition117
868444480public goodsGoods that are both nonrival and nonexcludable118
868444481quintilesWhen you rank household income from lowest to highest, each quintile represents 20 percent of all households119
868444482quotaA maximum amount of a good that can be imported into the domestic market120
868444483regressive taxA tax where the proportion of income paid in taxes decreases as income rises.121
868444484relative pricesThe price of one unit of good X measured not in currency, but in the number of units of good Y that must be sacrificed to acquire good X122
868444485renewable resourcesNatural resources that can replenish themselves if they are not over harvested123
868444486resourcesAlso called factors of production, these are commonly grouped into the four categories of labor, physical capital, land or natural resources, and entrepreneurial ability.124
868444487revenue tariffAn excise tax levied on goods that are not produced in the domestic market.125
868444488scarcityThe imbalance between limited productive resources and unlimited human wants126
868444489shortageA situation in which, at the market price, the quantity demanded exceeds the quantity supplied127
868444490short runA period of time too short to change the size of the plant, but many other, more variable resources can be adjusted to meet demand.128
868444491specializationProduction of goods, or performance of tasks, based upon comparative advantage129
868444492spillover benefitsAdditional benefits to society, not captured by the market demand curve from the production of a good.130
868444493spillover costsAdditional benefits to society, not captured by the market demand curve from the production of a good131
868444494subsidyA government transfer, either to consumers or producers, on the consumption or production of a good132
868444495substitute goodsTwo goods are consumer substitutes if they provide essentially the same utility to the consumer133
868444496substitution effectThe change in quantity demanded resulting from a change in the price of good relative to the price of other goods134
868444497supply curveShows the quantity of a good supplied at all prices135
868444498supply scheduleA table showing quantity supplied for a good at various prices136
868444499surplusA situation in which, at the going market price, the quantity supplied exceeds the quantity demanded137
868444500tax bracketA range of income on which a given marginal tax rate is applied138
868444501technologyA nation's knowledge of how to produce goods in the best possible way139
868444502total cost(TC)The sum of total fixed and total variable costs at any level level of output140
868444503total fixed costs(TFC)Production costs that do not vary with the level of output141
868444504total product(TPL) of laborThe total quantity of output produced for a given quantity of labor employed142
868444505total revenueThe price of a good multiplied by the quantity of that good sold143
868444506total revenue testTotal revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic144
868444507total utilityThe total happiness received from consumption of a number of units of a good145
868444508total variable costs(TVC)production costs that change with the level of output146
868444509total welfareThe sum of consumer surplus and producer surplus147
868444510trade-offsThe reality of scarce resources implies that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs148
868444511unit elastic demandEd=1. The percentage change in price is equal to percentage change in quantity demanded.149
868444512utilityHappiness, or benefit or satisfaction, or enjoyment gained from consumption of goods or services150
868444513utility maximizing ruleThe consumer chooses amounts of goods X and Y, with their limited income, so that the marginal utility per dollar spent is equal for both goods.151
868444514utilsA hypothetical unit of measurement often used to quantify utility; aka "happy points"152
868444515variable inputsProduction inputs that the firm can adjust in the short run to meet changes in demand for the firm's output.153
868444516world priceThe global equilibrium price of a good when nations engage in trade154

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