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AP Microeconomics > Midterm review > Flashcards

Midterm review Flashcards

1
Q

The study of how people, firms, and societies use their scarce productive resources to best satisfy their unlimited material wants.

A

Economics

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2
Q

Called factors of production, these are commonly grouped into the four categories of labor, physical capital, land or natural resources, and entrepreneurial ability.

A

Resources

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3
Q

The imbalance between limited productive resources and unlimited human wants. Because economic resources are scare, the goods and services a society can produce are also scarce.

A

Scarcity

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4
Q

Scarce resources imply that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs

A

Trade-offs

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5
Q

The value of the sacrifice made to pursue a course of action

A

Opportunity cost

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6
Q

The next unit or increment of an action

A

Marginal

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7
Q

The addition benefit received form the consumption of the next unit of a good or service

A

Marginal Benefit (MB)

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8
Q

The addition cost incurred form the consumption of the next unit of a good or service

A

Marginal cost (MC)

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9
Q

Making decisions based upon weighing the marginal benefits and costs of that actin. The rational decision maker chooses an action if the MB > MC

A

Marginal Analysis

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10
Q

Different quantities of goods that an economy can produce with a given amount of scarece resources. Graphically, the trade-off between the productions of two goods is portrayed as a production possibility curve or frontier (PPC, PPF)

A

Production Possibilities

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11
Q

A graphical illustration that shows the maximum quantity of one good that can be produced, given the quantity of the other good being produced

A

Production possibility curve (PPC), Production possibility frontier (PPF)

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12
Q

The more of a goof that is produced, the greater the opportunity cost of production the next unit of that good.

A

Law of increasing costs

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13
Q

The exists if a producer can produce more of a good than all other producers

A

Absolute advantage

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14
Q

A producer has comparative advantage if he can produce a good at lower opportunity cost than all other producers.

A

Comparative advantage

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15
Q

When firms focus their resources on production of goods for which they have comparative advantage, they are said to be specializing

A

Specialization

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16
Q

Production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient

A

Productive efficiency

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17
Q

Production of the combination of goods and services that provides the most net benefit to society. The optimal quantity of a good is achieved when the MB = MC of the next unit. This only occurs at one point on the PPF.

A

Allocative efficiency

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18
Q

This occurs when an economy’s production possibilities increase. It can be a result of more resources, better resources, or improvements in technology.

A

Economic growth

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19
Q

An economic system based upon the fundamentals of private property, freedom, self-interest, and prices

A

Market economy

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20
Q

Holding all else equal, when the price of a good rises, consumers decrease their quantity demanded for taht good

A

Law of demand

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21
Q

To predict how a change in one variable affects a sound, we hold all other variables constant. This is also referred to as the ceteris paribus assumption.

A

All Else Equal

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22
Q

The price of a good measured in units of currency

A

Absolute prices

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23
Q

The number of units of any other good Y that must be sacrificed to acquires the first good X. Only relative prices matter.

A

Relative prices

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24
Q

The change in quantity demanded resulting from a change in the price of one good relative to the price of other goods.

A

Substitution effect

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25
Q

The change in quantity demanded resulting from a change in he consumer’s purchasing power (real income)

A

Income effect

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26
Q

A table showing quantity demanded for a good at various prices

A

Demand schedule

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27
Q

A graphical depiction of the demand schedule. The curve is downward sloping, reflecting the law of demand.

A

Demand curve

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28
Q

A good for which higher income increases demand

A

Normal Goods

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29
Q

A goof for which higher income decreases demand

A

Inferior good

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30
Q

The external factors that shift demand to the left or right

A

Determinants of demand

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31
Q

Two goods are consumer substitues if they provide essentially the same utility to the consumer.

A

Substitute Goods

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32
Q

Two goods that provide more utility when consumed together than when consumed separately

A

Complementary goods

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33
Q

Holding all else equal, when the price of a good rises, suppliers increase their quantity supplied for that good

A

Law of supply

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34
Q

A table showing quantity supplied for a good at various prices

A

Supply schedule

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35
Q

A graphical depiction of the supply schedule. Upward sloping, reflecting the law of supply

A

Supply curve

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36
Q

One of the external factors that influences supply. When these variables change, the entire supply curve shifts to the left or the right.

A

Determinants of supply

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37
Q

Exists at the only price where the quantity supplied equals the quantity demanded.

A

Market equillibrium

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38
Q

Also known as excess demand, exists a market price when the quantity demanded exceeds the quantity supplied. The price rises to eliminate it.

A

Shortage

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39
Q

Any price where quantity demanded is not equal to quantity supplied

A

Disequillibrim

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40
Q

Also known as excess supple, exists at a market price when the quantity supplied exceeds the quantity demanded.

A

Surplus

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41
Q

The sum of consumer surplus and producer surplus. The free market equilibrium provides maximum combined gain to society

A

Total welfare

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42
Q

The difference between your willingness to pay and the price you actually pay. It is the area below the demand curve and above the price

A

Consumer surplus

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43
Q

The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price.

A

Producer surplus

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44
Q

Measures the sensitivity, or responsiveness, of a choice to a change in an external factor.

A

Elasticity

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45
Q

Measures the sensitivity of consumer quantity demanded for good X when the price of good X changes

A

Price elasticity of demand

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46
Q

E d = (%∆Q d )/(%∆P)

A

Price elasticity formula

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47
Q

E d > 1 or the (%∆Q d ) > (%∆P )

A

Price elastic demand

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48
Q

E d < 1 or the (%∆Q d ) < (%∆P).

A

Price inelastic demand

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49
Q

E d = 1 meaning the (%∆Q d ) = (%∆P).

A

Unit elastic demand

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50
Q

E d = 0. In this special case, the demand curve is vertical and there is absolutely no response to a price change.

A

Perfectly inelastic

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51
Q

E d = ∞. In this special case, the deamdn curve is horizontal meaning consumers have an instantaneous and infinite response to a price change

A

Perfectly elastic

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52
Q

In general, the more vertical a good’s demand curve, the more inelastic the demand for that good. The more horizontal a good’s demand curve, the more elastic the demand for that good.

A

Slope and elasticity

53
Q

If a good has more readily available substitutes, it is likely that consumers are more price elastic for that good. If a high proportion of a consumer’s income in devoted to a particular good, consumers are generally more price elastic for that good. When consumers have more time to adjust to a price change, their response is usually more elastic.

A

Determinants of elasticity

54
Q

TR = P x Q d

A

Total revenue formula

55
Q

Total revenue rises with a price increase if a demand is price inelastic and falls with a price increase if demand is price elastic.

A

Total revenue test

56
Q

At the midpoint of a linear deamdn curve, E d = 1. Above the midpoint demand is elastic and below the midpoint demand is inelastic

A

Elasticity and demand curves

57
Q

A measure of how sensitive consumption of good X is to a change in the consumer’s income.

A

Income elasticity

58
Q

E I = (%∆Q d good X )/(% ∆ income)

A

Income elasticity formula

59
Q

A good for which the income elasticity is greater than one

A

luxury

60
Q

A good for which the income elasticity is above zero but less than one

A

Necessity

61
Q

If E1 > 1, the good is normal and a luxury. If 1 > E1 > 0, the good is normal and income inelastic (necessity). If E1 < 0 the good is inferior

A

Values of income elasticity

62
Q

A measure of how sensitive consumption of good X is to a change in the price of good Y.

A

Cross-price elasticity of demand

63
Q

E x,y = (%∆Q d good X)/(% ∆ price Y)

A

Cross-price elasticity formula

64
Q

If E x,y > 0, goods X and Y are
substitutes. If E x,y < 0, goods X and Y are complementary.

A

Values of cross-price elasticity of demand

65
Q

Measures the sensitivity of quantity supplied for good X when the price of good X changes.

A

Price elasticity of supply

66
Q

E s = (%∆Q s )/(%∆ P )

A

Price elasticity of supply formula

67
Q

A per unit tax on production results in a vertical shift upward in the supply curve by the amount of the tax

A

Excise tax

68
Q

The proportion of the tax paid by consumers in the form of higher price for the taxed good is greater if demand for the good is inelastic and supply is elastic

A

Incidence of tax

69
Q

The plost net benefit to society caused by a movement away from the competitive market equilibrium. Polices like excise taxes create lost welfare to society.

A

Deadweight loss

70
Q

Has the opposite effect of an excise tax, as it has the effect of lowering the MC of production, resulting in a downward vertical shift in the supply curve for good X

A

Subsidy

71
Q

A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price, it creates a permanent surplus.

A

Price floor

72
Q

A legal maximum price above which the product cannot be sold. If a ceiling is installed at a level below the equilibrium price, it creates a permanent shortage.

A

Price ceiling

73
Q

Happiness, benefit, satisfaction, or enjoyment gained from consumption

A

Utility

74
Q

Total happiness received from consumption of a number of units of a good

A

Total utility

75
Q

The incremental happiness received, or lost, when the consumer increases consumption of a good by one unit

A

Marginal utility

76
Q

A unit of measurement often used to quantify utility.

A

Utils

77
Q

In a given time period, the marginal utility from consumption of more and more of that item falls.

A

Law of diminishing marginal utility

78
Q

For a one-good case. Constrained by prices and income, a consumer stops consuming a good when the price paid for the next unit is equal to the marginal benefit received.

A

Constrained utility maximalization

79
Q

The consumer maximizes utility when they choose amounts of goods X and Y, with their limited income, so that the marginal utility per dollar spent is equal for both goods.

A

Utility maximizing rule

80
Q

An organization that employs factors of production to produce a good or service that it hopes to profitably sell.

A

Firm

81
Q

The difference between TR and Total expllicit costs

A

Accounting profit

82
Q

The difference between TR and total explicit and implicit costs

A

Economic profit

83
Q

Direct, purchased, out of pocket costs paid to resource suppliers outside the firm

A

Explicit costs

84
Q

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneaur

A

Implicit costs

85
Q

A period of time too short to change the size of the plant, but many other, more variable resources can be adjusted to meet demand

A

Short run

86
Q

A period of time long enough to alter the plant size. New firms can enter the industry and existing frims can liquidate and exit

A

Long run

87
Q

The mechanism for combining production resources, with existing technology, into finished goods and services. Inputs are turned into outputs.

A

Production function

88
Q

Production inputs that cannot be changed in the short run. Usually this is the plant size or capital

A

Fixed inputs

89
Q

Production inputs that the firm can adjust in the short run to meet changes in demand for their output. Often this is labor and/or raw materials.

A

Variable inputs

90
Q

The total quantity, or total output, of a good produced at each quantity of labor emplyed.

A

Total Product of Labor (TPL)

91
Q

The change in total product resulting from a change in the labor input. Input. MPL = ∆TPL/∆L, or the slope of total product.

A

Marginal Product of Labor (MPL)

92
Q

Total product divided by labor employed: APL = TPL/L

A

Average product of labor (APL)

93
Q

As successive units of a variable resource are added to a fixed resource, beyond some point the marginal product declines.

A

Law of diminishing marginal returns

94
Q

Costs that do not vary with changes in short-run output. They must be paid even when output is zero.

A

Total fixed costs (TFC)

95
Q

Costs that change with the level of output. If output is zero, so are these

A

Total Variable Cost (TVC)

96
Q

The sum of total fixed cost and total variable costs at each level of output: TC = TVC + TFC

A

Total cost (TC)

97
Q

The additional cost of producing one more unit of output.

A

Marginal Cost

98
Q

Total fixed cost / output

A

Average fixed cost (AFC)

99
Q

Total variable cost / output

A

Average variable cost (AVC)

100
Q

Total cost / output

A

Average total cost (ATC)

101
Q

If labor is the variable input being paid a fixed wage, MC and MPL are inverses of each other.

A

Relationship between MPL and MC

102
Q

In the simplified case where labor is the variable input being paid a fixed wage. AVC and APL are inverses of each other.

A

Relationship between APL and AVC

103
Q

The downward part of the LRAC curve where LRAC falls as plant size increases. This is the result of specialization, lower costs of inputs, or other efficiencies from larger scale.

A

Economies of scale

104
Q

Occurs when LRAC is constant over a variety of plant sizes

A

Constant returns to scale

105
Q

The upward part of LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms, which results in lost efficiency and rising per unit costs

A

Diseconomies of scale

106
Q

The most competitive market structure, characterized by many small price-taking firms producing a standardized product in an industry in which there are no barriers to entry or exit.

A

Perfect Competition

107
Q

All firms maximize profit by producing where MR = MC

A

Profit maximizing rule

108
Q

The output in perfect competition where ATC is minimized and economic profit is zero.

A

Breakeven point

109
Q

The output where AVC is minimized. If the price falls below this point, the firm chooses to shut down or produce zero units in the short run.

A

Shutdown point

110
Q

Occurs when there is no more incentive for firms to enter or exit

A

Perfectly competitive long-ruin equilibrium

111
Q

Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources

A

Normal profit

112
Q

Entry (or exit) of firms does not shift the cost curves of firms in the industry

A

Constant cost industry

113
Q

Entry of new firms shifts the cost curves for all firms upward

A

Increasing cost industry

114
Q

Entry of new firms shifts the cost curves for all firms downward

A

Decreasing cost industry

115
Q

The least competitive market structure; it is characterized by a single producer, with no close substitutes, barriers to entry, and price-making power.

A

Monopoly

116
Q

The ability to set the price above the perfectly competitive level

A

Market power

117
Q

The case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand.

A

natural monopoly

118
Q

Pm > MR = MC, which is not allocatively efficient and deadweight loss exists. Pm > ATC, which is not productively efficient. π π m >
0 so consumer surplus is transferred to the monopolist as profit.

A

Monopoly long-run equilibrium

119
Q

The practice of selling essentially the same good to different groups of consumers at different prices

A

Price discrimination

120
Q

A market structure characterized by a few small firms producing a differentiated product with easy entry into the market

A

Monopolistic competition

121
Q

Pmc > MR = MC and Pmc > min ATC, so the outcome is not efficient, but π π mc = 0.

A

Monopolistic competition long-run equilibrium

122
Q

The difference between the monopolistic competition output Qmc and the output at minimum ATC. Excess capacity is underused plant and equipment

A

Excess capacity

123
Q

A very diverse market structure characterized by a small number of interdependent large firms, producing a standardized or differentiated product in a market with a barrier to entry

A

Oligopoly

124
Q

A measure of industry market power. If the combined market share of the four largest firms is above 40%, it is a good indicator of oligopoly

A

Four-firm concentration ratio

125
Q

Models where firms are competitive rivals seeking to gain at the expense of their rivals.

A

Non-collusice oligopoly

126
Q

A game where the two rivals achieve a less desirable outcome because they are unable to coordinate their strategies

A

Prisoners’ dilemma

127
Q

A strategy that is always the best strategy to pursue, regardless of what a rival is doing

A

Dominant strategy

128
Q

Models where firms agree to mutually improve their situation

A

Collusive oligopoly

129
Q

A group of firms that agree not to compete with each other on the basis of price, production, or other competitive dimensions. Members operate as a monopolist to maximize their joint profits.

A

Cartel

AP Microeconomics (1 decks)

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