AP Micro Unit 6

Positive Consumption Externality

Positive spillovers from consumption of good or service.

Positive Production Externality

Positive spillovers from production of good or service.

Total cost to society (Positive Externality)

Total cost to society is less than that to just the producer.

Total benefit to society (Positive Externality)

Total benefit to society is greater than that to just the consumer.

Negative Consumption Externality

Negative spillovers from consumption of good or service.

Negative Production Externality

Negative spillovers from production of good or service.

Total benefit to society (Negative Externality)

Total benefit to society is less than that to just the consumer.

Total cost to society (Negative Externality)

Total cost to society is greater than that to just the producer.

Types of Taxes

Different categories of taxes based on how they affect income.

Regressive Tax

As your income increases, percentage of income paid in taxes decreases.

Proportional Tax

As your income increases, percentage of income paid in taxes stays the same.

Progressive Tax

As your income increases, percentage of income paid in taxes increases.

Lorenz Curve

Curve that shows percentage of a nation's total income for different percentages of a nation's population.

Gini Coefficient

Percentage that the area above the Lorenz curve represents of all the area below the 45˚ line.

Per-Unit Tax

Per-unit taxes act as a variable cost.

Lump-Sum Tax

Lump-sum taxes act as a fixed cost.

Impact of Per-Unit Tax on MC

Per-unit taxes increase MC, AVC, and ATC for the monopolist.

Impact of Lump-Sum Tax on ATC

Lump-sum taxes increase the ATC (because AFC increases) but not the MC.

Impact of Per-Unit Subsidy on Costs

Per-unit subsidies reduce per-unit costs (think variable costs).

Impact of Lump-Sum Subsidy on Costs

Lump-sum subsidies act as a reduction of fixed costs.

Impact of Per-Unit Subsidy on MC

Per-unit subsidies decrease MC, AVC, and ATC for the monopolist.

Impact of Lump-Sum Subsidy on ATC

Lump-sum subsidies decrease the ATC (because AFC decreases) but not the MC.