AP MICROECON UNIT 2 VOCAB

Ceteris paribus

Latin phrase that means "all other things held constant”

Complements

Goods and services that are used together. Two goods for which an increase in the price of one leads to a decrease in the demand for the other

Example: peanut butter and Jelly

Consumer surplus

The amount a buyer is willing to pay for a goof minus the amount the buyer actually pays for it

Cost

An amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain.

Dead weight lost

Measures the inefficiency caused from a market distortion

Demand (law of Demand)

Consumers buy more of a good when its price decreases and less when its price increases

Demand curve

A curve that shows the number of units the market will buy in a given time period, at different prices that might be changed

Efficiency

A measure of how well or how productively resources are used to achieve a goal (minimum waste)

Elastic

A measure of responsiveness. A measure of how much one economic variable responds to changes in another economic variable.

Elasticity

Measure the responsiveness of demand and supply of a good or service to an increase or decrease in its price

Elastic of Demand

The degree to which demand for a good or service varies with its price.

Example: Demand is elastic if Ed > 1, and I elastic if Ed < 1. (Ed elasticity of demand)

Elasticity of supply

Responsiveness of a producers to change in the price of their goods or services.

Equilibrium Price

the price at which the amount of goods producer supply meets the amount of goods consumers demand

Equilibrium Quantity

The quantity supplied and the quantity demanded at the equilibrium price.

Equity

The state or quality of being just, fair, or impartial; fair and equal treatment; something that is fair; the money value of a property above and beyond any mortgage or other claim

Income “Y”

earnings from work or investment

Inelastic

Describes demand that is not very sensitive to a change in price

Inferior good

A good for which, other things equal, an increase in income leads to a decrease in demand.

Lump sum tax

A tax that is the same amount for every person. Affects fixed costs, doesn’t change supply! (Just changes price)

Example: poll tax, car license tax

Luxury good

Goods that were not necessary to support life; made life more enjoyable…Goods that have income elasticities greater than one. When the consumer income grows, quantity demanded of the luxury goods rises more than the rise in income.

Market

A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange.

Market clearing price

The price that clears the market where there is no excess quantity demanded or supplied and the price at which the demand curve intersects the supply curve aka equilibrium price.

Necessity good

Are products and services that consumers will buy regardless of the changes in their income levels (inelastic)

Normal good

A good for which, other things equal, an increase in income leads to an increase in demand

Per-unit tax

An amount/penalty paid for each unit purchased/manufactured. Most taxes on goods are per-unit

Price

An amount usually expressed in terms of money paid for property

Price ceiling (Pc)

A legal maximum on the price at which a good can be sold

Price floor (Pf)

A legal minimum on the price at which a good can be sold

Price maker (searcher)

Firms who are able to influence price as their output represents a significant share of the market

Price takers

Buyers and sellers must accept the price the market determines

Producer surplus

The amount a seller is paid for a good minus the seller’s cost of providing it

Quantity

An amount or number

Quantity demand (Qd)

How many units of a good or service consumers are willing and able to buy at one specific price

Quantity supplied (Qs)

The amount of a good to service that a firm is willing and able to supply at a given price

Shortage

A situation in which quantity demanded is greater than quantity supplied

Subsidy

A money payment or other form of aid that the government gives a person or organization (opposite of a tax)

Substitute

Goods and services that can be used for the sane purpose

Law of supply

Tendency of suppliers to offer more of a good at a higher price

Supply curve

A graph of the relationship between the price of a good ad the quantity supplied

Surplus

A situation in which quantity supplied is greater than quantity demanded

Tariff

A tax on imported goods

Total revenue (TR)

The total amount of money a firm receives by selling goods or services

PxQ=TR