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AP Micro > Unit 2 > Flashcards

Unit 2 Flashcards

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1
Q

competitive market

A

A competitive market is a market in which
there are many buyers and sellers of the
same good or service, none of whom can
influence the price at which the good or
service is sold.

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2
Q

demand schedule

A

A demand schedule shows how much of a
good or service consumers will be willing and
able to buy at different prices.

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3
Q

law of demand

A

The law of demand says that a higher price
for a good or service, all other things being
equal, leads people to demand a smaller
quantity of that good or service.

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4
Q

inferior good

A

When a rise in income decreases the demand
for a good, it is an inferior good.

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5
Q

change in demand

A

A change in demand is a shift of the
demand curve, which changes the quantity
demanded at any given price.

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6
Q

substitutes

A

Two goods are substitutes if a rise in the
price of one of the goods leads to an increase
in the demand for the other good.

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7
Q

individual demand curve

A

An individual demand curve illustrates
the relationship between quantity demanded
and price for an individual consumer.

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8
Q

supply and demand model

A

The supply and demand model is a model
of how a competitive market works.

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9
Q

normal good

A

When a rise in income increases the demand
for a good—the normal case—it is a
normal good.

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9
Q

movement along a demand curve

A

A movement along the demand curve
is a change in the quantity demanded of a
good that is the result of a change in that
good price.

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10
Q

compliments

A

Two goods are complements if a rise in the
price of one of the goods leads to a decrease
in the demand for other goods.

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11
Q

quantity demanded

A

The quantity demanded is the actual
amount of a good or service consumers are
willing and able to buy at some specific price.

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12
Q

demand curve

A

A demand curve is a graphical
representation of the demand schedule. It
shows the relationship between quantity
demanded and price.

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13
Q

The quantity supplied

A

is the actual amount
of a good or service producers are willing to
sell at some specific price.

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14
Q

A supply schedule shows

A

how much of a
good or service producers will supply at
different prices.

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15
Q

A supply curve

A

shows the relationship
between quantity supplied and price.

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16
Q

The law of supply

A

says that, other things
being equal, the price and quantity supplied
of a good are positively related.

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16
Q

A movement along the supply curve

A

is a change in the quantity supplied of a good that is the result of a change in that good’s price.

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17
Q

Determinants of supply

A

is a shift of the supply
curve, which changes the quantity supplied at any given price:

Prices/avaliability of resources
other /alternates goods
technology
taxes and subsidies
expectation of future profit
number of sellers

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18
Q

An input

A

is anything that is used to produce
a good or service.

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19
Q

An individual supply curve

A

illustrates the relationship between quantity supplied and price for an individual producer.

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20
Q

An economic situation is in equilibrium
when…

A

no individual would be better off doing
something different.

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21
Q

A competitive market is in equilibrium
when…

A

price has moved to a level at which
the quantity demanded of a good equals
the quantity supplied of that good. The
price at which this takes place is the
equilibrium price, also referred to as the
market-clearing price. The quantity of
the good bought and sold at that price is the
equilibrium quantity.

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22
Q

There is a surplus of a good when…

A

the
quantity supplied exceeds the quantity
demanded. Surpluses occur when the price is
above its equilibrium level.

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23
There is a shortage of a good when...
the quantity demanded exceeds the quantity supplied. Shortages occur when the price is below its equilibrium level.
24
Price controls
are legal restrictions on how high or low a market price may go. They can take two forms:
25
a price ceiling,
a maximum price sellers are allowed to charge for a good or service,
26
price floor
a minimum price buyers are required to pay for a good or service.
27
what are inefficient allocations to consumers caused by?
Price ceilings often lead to inefficiency in the form of inefficient allocation to consumers: people who want the good badly and are willing to pay a high price don’t get it, and those who care relatively little about the good and are only willing to pay a relatively low price do get it.
28
inefficiency low quality
Price ceilings often lead to inefficiency in that the goods being offered are of inefficiently low quality: sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price.
29
wasted resources
Price ceilings typically lead to inefficiency in the form of wasted resources: people expend money, effort, and time to cope with the shortages caused by the price ceiling.
30
A black market
is a market in which goods or services are bought and sold illegally— either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling.
31
The minimum wage
is a legal floor on the wage rate, which is the market price of labor.
32
what is inefficient allocation of sales among sellers caused by?
Price floors lead to inefficient allocation of sales among sellers: those who would be willing to sell the good at the lowest price are not always those who manage to sell it.
33
quantity control / quota
A quantity control, or quota, is an upper limit on the quantity of some good that can be bought or sold.
34
inefficiency high quality
Price floors often lead to inefficiency in that goods of inefficiently high quality are offered: sellers offer high-quality goods at a high price, even though buyers would prefer a lower quality at a lower price.
34
demand price
The demand price of a given quantity is the price at which consumers will demand that quantity.
35
license
A license gives its owner the right to supply a good or service.
36
supply price
The supply price of a given quantity is the price at which producers will supply that quantity.
37
wedge
A quantity control, or quota, drives a wedge between the demand price and the supply price of a good; that is, the price paid by buyers ends up being higher than that received by sellers.
38
quota rent
The difference between the demand and supply price at the quota amount is the quota rent, the earnings that accrue to the license-holder from ownership of the right to sell the good. It is equal to the market price of the license when the licenses are traded.
39
DWL
Deadweight loss is the lost gains associated with transactions that do not occur due to market intervention.
40
substitution effect
The substitution effect of a change in the price of a good is the change in the quantity of that good demanded as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive.
41
income effect
The income effect of a change in the price of a good is the change in the quantity of that good demanded that results from a change in the consumer’s purchasing power when the price of the good changes.
42
price elasticity of demand
The price elasticity of demand is the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign).
43
midpoint method
The midpoint method is a technique for calculating the percent change. In this approach, we calculate changes in a variable compared with the average, or midpoint, of the initial and final values.
44
Demand is perfectly inelastic
when the quantity demanded does not respond at all to changes in the price. When demand is perfectly inelastic, the demand curve is a vertical line.
45
Demand is perfectly elastic
when any price increase will cause the quantity demanded to drop to zero. When demand is perfectly elastic, the demand curve is a horizontal line.
46
When is demand elastic or inelastic?
Demand is elastic if the price elasticity of demand is greater than 1, inelastic if the price elasticity of demand is less than 1, and unit-elastic if the price elasticity of demand is exactly 1.
47
total revenue
Total revenue is the total value of sales of a good or service. It is equal to the price multiplied by the quantity sold.
48
The cross-price elasticity of demand
between two goods measures the effect of the change in one good’s price on the quantity demanded of the other good. It is equal to the percent change in the quantity demanded of one good divided by the percent change in the other good’s price
49
The income elasticity of demand
is the percent change in the quantity of a good demanded when a consumer’s income changes divided by the percent change in the consumer’s income.
50
The demand for a good is income-elastic
if the income elasticity of demand for that good is greater than 1.
51
The demand for a good is income-inelastic
if the income elasticity of demand for that good is positive but less than 1.
52
The price elasticity of supply
is a measure of the responsiveness of the quantity of a good supplied to the price of that good. It is the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve.
53
There is a perfectly elastic supply if
the quantity supplied is zero below some price and infinite above that price. A perfectly elastic supply curve is a horizontal line.
53
There is a perfectly inelastic supply
when the price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied. A perfectly inelastic supply curve is a vertical line.
54
A consumer’s willingness to pay
for a good is the maximum price at which he or she would buy that good.
55
Individual consumer surplus
is the net gain to an individual buyer from the purchase of a good. It is equal to the difference between the buyer’s willingness to pay and the price paid.
56
A seller’s cost
is the lowest price at which he or she is willing to sell a good.
57
The term consumer surplus
is often used to refer to both individual and to total consumer surplus.
57
Total consumer surplus
is the sum of the individual consumer surpluses of all the buyers of a good in a market.
58
Individual producer surplus
is the net gain to an individual seller from selling a good. It is equal to the difference between the price received and the seller’s cost.
59
Total producer surplus
in a market is the sum of the individual producer surpluses of all the sellers of a good in a market.
60
Economists use the term producer surplus to refer...
both to individual and to total producer surplus.

AP Micro (4 decks)

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