AP Econ Unit 2 TEST

Consumer Surplus

The benefit you get when you pay less for a good/service than the maximum amount you are willing to pay

Producer Surplus

The benefit a seller receives when selling a good/service at a market price higher than the minimum price they are willing to accept

Productive Efficiency

When a business produces the maximum possible output using the fewest resources, results in the lowest possible average cost per unit

Allocative Efficiency

When resources are distributed to produce the exact mix of goods and services that society values most

Price Ceiling

a legal maximum price that sellers are allowed to charge for a product or service

Price Floor

A minimum legal price for a good/service

Cross Price Elasticity of Demand/Supply

Measures how much the quantity demanded/supplied of one good changes when the price of another good changes

Income Effect

The change in consumer demand for a good/service caused by a shift in purchasing power or real income

Substitution Effect

The tendency of consumers to replace more expensive items with cheaper alternatives when a product's price rises while their income stays the same

Total Revenue

Total amount seller receives from the sale of a product

( TR = P ~ Q )