AP Microeconomics Final Exam Review

A comprehensive set of vocabulary flashcards covering key concepts from AP Microeconomics, perfect for exam preparation.

Opportunity Cost

The next best alternative given when a choice is made.

PPC/PPF

Production Possibilities Curve/Frontier, depicting efficiency in resource allocation.

Comparative Advantage

The ability of one entity to produce something at a lower opportunity cost than another.

Demand Determinants

Factors affecting demand, including consumer income, tastes, expectations, population, and price of related goods.

Supply Determinants

Factors affecting supply, including cost of inputs, expectations, government regulation, number of sellers, productivity, taxes, and technology.

Price Ceiling

A legal maximum price at which a good can be sold, resulting in a shortage if set below equilibrium.

Price Floor

A legal minimum price for a good, causing a surplus if set above equilibrium.

Normal Good

A good for which demand increases when income increases.

Inferior Good

A good for which demand increases when income decreases.

Economic Profit

Calculated as Total Revenue minus Explicit Costs and Implicit Costs.

Law of Diminishing Marginal Returns

Describes the stages of production changes in total and marginal products.

Perfect Competition

A market structure characterized by a large number of sellers and standardized products.

MR=MC

The point where profit is maximized and loss is minimized in perfect competition and monopoly.

Economic Profit (P>ATC)

Occurs when price exceeds average total cost in perfect competition.

Economic Loss (P<ATC)

Occurs when price is below average total cost in perfect competition.

Zero Economic Profit (P=ATC)

Occurs when price equals average total cost in perfect competition.

Shut-Down Point (P=AVC)

The point in perfect competition where price equals average variable cost.

Monopoly

A market structure with a single seller, no close substitutes, and monopolistic pricing power.

Price Discrimination

Charging different prices to different consumers for the same good or service.

Cartel

An agreement among firms to restrict outputs to raise prices, which is difficult to maintain.

Game Theory

The study analyzing the strategic interactions among firms, especially in oligopolistic markets.

Nash Equilibrium

A situation where each player optimally chooses their strategy given the choices of others.

Excess Capacity

Occurs when a firm has more production capability than needed in monopolistic competition.

Derived Demand

The demand for a factor of production derived from the demand for the goods/services it produces.

Marginal Revenue Product (MRP)

The value contributed by the next unit of a resource, calculated as MPP times P.

MRP=MRC

The hiring point for workers in a factor market.

Lorenz Curve

A graphical representation of income inequality within a population.

Gini Coefficient

A measure of income distribution inequality, where 0 represents complete equality and 1 complete inequality.

Gini Ratio

Calculated by dividing A by A+B to measure distribution inequality.

Progressive Tax

A tax structure where average tax rate increases as income increases.

Regressive Tax

A tax structure where average tax rate decreases as income increases.

Proportional Tax

A flat tax rate regardless of income level.

Positive Externality

A situation where a product or decision benefits others, often leading to under-allocation of resources.

Negative Externality

A situation where a product or decision imposes costs on others, leading to over-allocation of resources.