AP Microecon

Absolute Advantage

the ability to produce a good using fewer inputs than another producer

Accounting Profit

total revenue minus total cost of expenses

Allocative Efficiency

the particular mix of goods and services most highly valued by society

Capitalist Market System

A system in which
individuals and businesses own and control the production of goods.

Monopoly

a market structure that consists of only one seller or one producer

Oligopoly

a market structure in which a small number of seller can produce and sell different products

Comparative Advantage

the ability to produce a good at a lower opportunity cost than another producer

Complementary Good

a product often used with another product

Comsumer Surplus

The difference between the maximum price and the actual price a customer pays

Producer Surplus

the difference between the lowest price a firm would be willing to accept and the price it actually receives

Demand

the quantity of a good or service that consumers are willing and able to buy at a certain price in a given period of time

Derived Demand

business demand that ultimately comes from the demand for consumer goods

Supply

The amount of goods available

Dominant Strategy

a strategy that is the best for a firm, no matter what strategies other firms use

Explicit Cost

normal costs of a business that can appear in a companies account log and can affect a company's profitability

Export

A good or service produced in the home country and sold in another country.

Free Rider

a person who receives the benefit of a good but avoids paying for it

Gini Ratio

A measure of income inequality (0 - perfect equality & 1 - perfect inequality)

Implicit Cost

The opportunity of using resources that a company already owns to produce a good

Imports

goods produced abroad and sold domestically

Income Elasticity

A measure of how much the
demand for goods changes when people's income
changes

Inferior Good

a good that consumers demand less of when their incomes increase

Law of Diminishing Marginal Returns

claims that by adding an additional factor of production it can result in smaller increases in output

Lorenz Curve

A graph that shows how much money/ wealth is held by different groups of people in a population

Marginal Analysis

A decision making tool that figures out if doing a little bit more or a little less, maximizes the benefits while minimizing production cost

Marginal Product of Labor

the additional output a firm produces as a result of hiring one more worker

Market Equilibrium

when the market supply is equal to the quantity demanded

Market Failure

a situation in which a market left on its own fails to assign resources efficiently

Negative Externality

a cost that is suffered by a third party as a result of an economic transaction

Opportunity Cost

the benefit that would have been derived from an option that was not chosen

Price Ceiling

the maximum amount a seller can charge for a product or service usually set by the government

Price Floor

the lowest legal price that companies can charge for a product, service, labor and financial capital

Progressive Tax

A tax that takes a larger percentage of income from people with higher incomes.

Protective Tariff

made to protect domestic production from foreign competition by raising the prices of the imported commodities

Quota

government-imposed trade restriction that is used to limit the number of goods that could be imported or exported in a country

Shortage

when a demand for a product or service is way past the amount that is supplied

Surplus

when the amount of goods surpasses the amount demanded by the economy

Gov. Subsidy

benefits given by the government to groups or individuals, which are usually given in forms of cash payments or tax reductions

Trade - Off

Giving up one thing for another