Microeconomics AP

economics

the study of how society allocates scarce resources

Macroeconomics

the branch of economics that studies national and international economics

microeconomics

the branch of economics that studies how people and firms make decisions

model

a simplified representation of a real situation used to better understand real-life situation

property rights

the rights of owners of resources or goods to use and dispose of those items as they choose

resources

also called "factors of production," these are commonly grouped into the four categories: labor, physical capital,land(natural resources), and entrepreneurial(企业家的) ability

capital

the resources that includes equipment, machinery, buildings, and tools

scarcity

the imbalance between limited productive resources and unlimited human wants

trade-offs

the reality of scare resources implies that individuals, firms,and governments are constantly faced with difficult choices that involve benefits an costs

opportunity cost

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

marginal

the next unit, or increment(增长), of an action

marginal benefit(MB)

the additional benefit received from the consumption of the next unit of a good or service

marginal cost(MC)

the additional cost of producing one more unit of output

marginal analysis

making decisions based upon weighing the marginal benefits and costs of that action. The rational decision maker will choose an action if the marginal benefit is greater that or equal to the marginal cost(MB>=MC)

production possibilities

the different quantity of goods that an economy can produce with a given amount of scare resources.

law of increasing costs

as more of a good is produced, the greater is its opportunity (or marginal ) cost

absolute advantage

the ability to produce more of a good than all other producers

comparative advantage

the ability to produce a good at a lower opportunity cost than all other producers.

specialization

production of goods or performance of tasks based upon comparative advantage

barter

the act of exchanging goods and services for other goods and services

productive efficiency

production of maximum output for a given level of technology and resources

allocative efficiency

production of the combination of goods and service that provides the most net benefit to society; achieved when the marginal benefit equals the marginal cost(MB=MC) of the next unit.

economic growth

the increase in an economy's production possibilities over time

economy

a system for coordinating(协调) society's productive activities

Market Economy(Capitalism)

an economic system in which resources are allocated through the decentralized(分散化的) decisions of firms and consumers

production possibility frontier(curve)

the graphical device used to show the production possibilities of two goods

curve

a line on a graph that shows the relationship between two variables

Law of demand

all else equal, when the price of a good rises, the quantity demanded of that good falls

Demand price

the price of a given quantity at which consumers will demand that quantity

all else equal

the assumption that all other variables are held constant so we can predict how a chang in one variable affects a second. Also sometimes referred to as the ceteris paribus assumption.

Absolute(or money ) prices

the price of a good measured in units of currency

relative price

the price of one unit of good X measured not in currency, but in the number of units of good Y that must be sacrificed to acquire good X

substitution effect

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

income effect

due to a higher price, the change in quantity demanded that results from a change in the consumer's purchasing power (or real income)

demand schedule

a table showing quantity demanded for a good at various prices

demand curve

shows the quantity of a good demanded at all prices

determinants (shifters) of demand

the external factors that shift demand to the left or right

normal goods

a good for which demand increases with an increase in consumer income

inferior good

a good for which demand decreases with an increase in consumer income

substitute goods

two goods are consumer substitutes if they provide essentially the same utility to the consumer

complementary goods

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

law of supply

all else equal, when the price of a good rises, the quantity supplied of that good rises

supply schedule

a table showing quantity supplied for a good at various prices

supply curve

shows the quantity of a good supplied at all prices

determinants (shifters) of supply

the external factors that shift supply to the left or right

market equilibrium

this exists at the only price where the quantity supplied equals the quantity demanded. or it is the only quantity where the price consumers are willing to pay is exactly the price producers are willing to accept

shortage

a situation in which, at the going market priec, the quantity demanded exceeds the quantity supplied.

disequilibrium

any price where the quantity demanded does not equal the quantity supplied

surplus

a situation in which, at the going market price, the quantity supplied exceeds the quantity demanded

total welfare(福利)

the sum of consumer surplus and producer surplus(ps. jus t mathematically)

consumer surplus

the diference between buyer's willingness to pay(顾客对产品价值的预计消费) and the price actually paid

producer surplus

the difference between the price received(生产商赚到的数额) and the marginal cost of producing the good（在特定数目时， marginal cost的数额）

elasticity

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

price elasticity of demand

-measures the sensitivity of consumers' quantity demanded for good X when the price of good X changes

price elastic demand

Ed > 1, meaning consumers are price sensitive

price inelastic demand

Ed < 1 or the (%ΔQd) < (%ΔP). Consumers are not price sensitive

unit elastic demand

Ed=1. The percentage change in price is equal to the percentage change in quantity demand

perfectly elastic

Ed=infinite. In this special case, the demand curve is horizontal meaning consumers have an instantaneous & infinite response to a change in price

perfectly inelastic

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

slope and elasticity

-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

-despite this generalization, be careful, as elasticities and slopes are not equivalent measures.

determinants of elasticity

-demand for a good will generally be more elastic if :

_the good has more readily available substitutes;

_the sonsumers spends a high proportion of his or her income on that good;

_the consumer has more time to adjust to a price change

total revenue

the price of a good multiplied by the quantity of that good sold

total revenue test

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

elasticity and demand curves

at the midpoint of a linear demand curve, Ed =1 . above the midpoint demand is elastic , and below the midpoint demand is inelastic.

income elasticity

a measure of how sensitive the consumption of a good is to a change in consumer's income(Ei)

Luxury

a good for which the proportional increase in consumption is greater than the proportional increase in income

Ei > 1

necessity

a good for which the proportional increase in consumption is less than the proportional increase in income

0 < Ei < 1

values of income elasticity

-if Ei>1, the good is normal and a luxury

-if 0<Ei<1, the good is normal and a necessity

-if Ei<o, the good is inferior

cross-price elasticity of demand

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

values of cross- price elasticity of demand

-if Ec>0, goods X and Y are substitutes

-if Ec<0, goods X and Y are complementary

price elasticity of supply

measures the sensitivity of producer's quantity supplied for good X when the price of good X changes

excise tax

-a per-unit tax on a specific good or service.

-if levied(征收) on a firm, this tax shifts the supply curve upward by the amount of the tax.

-this tax also increases the marginal cost(MC), average variable cost(AVC), and average total cost(ATC) curves

lump-sum tax

-a tax levied on all firms or consumers(消费者)

-if levied on a firm, this tax will increase average fixed cost(AFC) and average total cost(ATC) but not average variable cost(AVC) or marginal cost(MC)

incidence of tax

the division of a tax between consumers and producers

deadweight loss

the lost net benefit to society caused by a movement away from the competitive market equilibrium

inefficient

a situation in which there are missed opportunities; some people could be made better off without making other people wore off

subsidy

-a government transfer, either to consumers or producers, of the consumption or production of a good

-A government payment to support an individual, business, or group in exchange for certain actions.

price floor

a legal minimum price, below which the product cannot be sold

price ceiling

a legal maximum price, above which the product cannot be sold

minimum wage

a price floor in the labor market

utility

the happiness, benefit, satisfaction, or enjoyment gained from consumption of goods and services

total utility(TU)

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

marginal utility(MU)

-the change in an individual's total utility from the consumption of an additional unit of a good or service

-MU= DIFFERENCE OF TU

utils(跑龙套)

a hypothetical unit of measurement often used to quantify utility; also referred to as "Happy Points."

law of diminishing marginal utility

in a given time period, as consumption of an item increases, the marginal(additional) utility from that item falls