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AP ECON > FInal Exam Review > Flashcards

FInal Exam Review Flashcards

1
Q

Absolute advantage

A

refers to a country’s ability to produce a certain good more efficiently than another country.

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2
Q

Comparative advantage

A

refers to a country’s ability to produce a particular good with a lower opportunity cost than another country.

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3
Q

Law of Diminishing Marginal Utility

A

The more of a good a consumer already has, the lower the extra (marginal) utility (satisfaction) provided by each extra unit.

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4
Q

Why the demand curve slopes downward

A

The Law of Diminishing Marginal
Utility
Income Effect—a lower price has the effect of increasing money income⇒buy more of other things
Substitution Effect—a lower price cause people to switch to the purchase of the “better deal”
Common sense—buy more if price is lower

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5
Q

Elasticity & Total Revenue Test

A

Elastic >1 ifP↓⇒TR↑ (opposites)
Unit Elastic =1 if ∆P⇒no ∆TR
Inelastic <1 if P↓⇒TR↓ (same direction

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6
Q

Consumers’ surplus

A

is the difference between that paid (Pe) and what one would have paid based on utility (Phi)

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7
Q

Producers’ surplus

A 
is the difference in the
price charged (Pe) and the price a seller could sell for based on costs (Plo).
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8
Q

Efficiency Loss = Dead Weight Loss

A

Govt. taxes or regulations or monopoly power reduce consumer and/or producer surpluses below society’s allocative efficiency.

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9
Q

Government Price Floor

A

Surplus

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10
Q

Government Price Ceiling

A

Shortage

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11
Q

Law of Diminishing Returns

A

As extra units of a variable resource/input (labor) are added to fixed resources (capital,land), output (product, quantity) will decline at the same point

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12
Q

Short Run Production Costs

A

TC=FC+VC
ATC=AFC+AVC
TC/Q=ATC VC/Q=AVC FC/Q=AFC
Fixed costs can’t change in the short run.
Variable costs can change in the short run.

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13
Q

Marginal Costs:

A

MC is the cost of producing one more unit of output

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14
Q

Perfect Competition – The Firm

A

Characteristics

**Very large number of firms **Standardized products
**Price takers **Easy entry into and easy exit from market **No non-price competition (advertising)
Profit Maximization Rule MR=MC

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15
Q

Monopoly – THEORY OF FIRM

A

Characteristics

*One firm=industry
**Unique product with no close substitutes
**Price maker
**Many barriers, entry blocked **Little advertising except for public relations
Profit Maximizing Rule MR=MC

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16
Q

Price Discrimination

A

The practice of selling a product at more than one price not justified by cost differences. Due to *monopoly power, *Ed segregates market, *buyers can’t resell product. Examples: airlines, movies
P varies; MR=D

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17
Q

Monopolistic Competition – Theory of the Firm

A

Characteristics

  • *Many firms
  • *Differentiated products
  • *Limited control over price
  • *Few entry barriers
  • *Much non-price competition— many ads,brands
  • *Ex: retail trade, clothing, restaurants
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18
Q

Oligopoly

A

**Few firms
**Standardized or differentiated **Interdependence limits price control unless collusion
**Many barriers to entry
**Non-price competition high with product differentiation—ads
**Ex: Aircraft, tires
Collusion=Cooperation

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19
Q

Strategic Behavior

A

A firm consider reactions of other firms to its actions.

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20
Q

Concentration Ratio

A

% of market controlled by largest firms

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21
Q

Dominant Strategy

A

best for a player no

matter what other does— Both runs ad’s even though it is an inferior position.

22
Q

Payoff Matrix

A

Payoff or profit to each party for each combination of choices

23
Q

Negative Externality

A

Private costs born by society/3rd party

24
Q

Positive Externality

A

Social benefits to 3rd parties born by private firms

25
Q

Public Goods

A

Govt. provides the goods/service * Paid by tax revenues Difficult to exclude non- payers ⇒ freeriders Shared consumption of good, service ⇒ no rivalry for good/service

26
Q

Lorenz Curve—Income Inequality

A

Distance between 0e and Lorenz Curve shows degree of inequality

27
Q

explicit costs

A

input costs that require a direct outlay of money by the firm

28
Q

implicit costs

A

input costs that don’t require a direct outlay of money

29
Q

MC

A

Change in total cost/change in quantity

30
Q

symmetric information

A

assumes all buyers have all the information

31
Q

perfect information

A

consumers know prices and available substitutes

producers know costs of production

32
Q

potential market failures

A

asymmetric info
adverse selection
moral hazard

33
Q

asymmetric info

A

buyers/sellers have different info on a good in the market

34
Q

adverse selection

A

when the uninformed side of the market chooses a less than optimal good/service

35
Q

moral hazard

A

individual or group has incentive to play in something that will hurt someone else

36
Q

payroll taxes

A

tax on the wages that a firm pays its workers

37
Q

social insurance taxes

A

taxes on wages that is emabarked to pay for social security medicare

38
Q

excise taxes

A

taxes on specific goods like gasoline, cigarettes, and alcoholic bevergaes

39
Q

lump-sum tax

A

tax that is the same amount for every person

40
Q

benefits principle

A

the idea that people should pay taxes based on the benefits they receive from government services

41
Q

ability to pay principle

A

the idea that taxes should be levied on a person according to how well that person can shoulder the burden

42
Q

vertical equity

A

idea that taxpayers with a greater ability to pay taxes should pay larger amounts

43
Q

proportional tax

A

high-income and low-income pay the same fraction of income

44
Q

regressive tax

A

high-income pay a smaller fraction of their income than do low-income tax payers

45
Q

progressive tax

A

high-income taxpayers pay a larger fraction of their income than do low-income taxpayers

46
Q

horizontal equity

A

idea that taxpayers with similar ability to pay taxes should pay the same amounts

47
Q

tax on inelastic demand

A

buyers lose more

48
Q

tax on elastic demand

A

producers lose less

49
Q

price elasticity of demand

A

(% change in Q demanded)/(%change in $)

50
Q

Demand elasticity

A

The larger the number of close substitutes
If the good is a luxury
The more narrowly defined the market
The longer the time period

AP ECON (5 decks)

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