Entirety of AP Micro

WIP

The Law of Diminishing Marginal Utility

When consuming something, the additional satisfaction you receive will eventually decrease.

Utility Maximizing Rule

The consumer’s money should be spent so that the marginal utility per dollar of goods equal each other.

Demand

The different quantities of goods that consumers are willing and able to buy at different prices.

Law of Demand

There’s an inverse relationship between price and quantity demanded.

5 Shifters of Demand

Tastes and Preferences, Number of Consumers, Price of Related Goods, Income, Future Expectations

Price Elasticity of Demand (PED)

Measures how sensitive quantity demanded is to a change in price.

Inelastic Demand

Quantity is insensitive to a change in price

A perfectly inelastic curve has a coefficient of

0

Price Elasticity of Supply (PES)

Measures how sensitive quantity supplied is to a change in price.

Inelastic

Insensitive to a change in price (most goods have inelastic supply in the short run)

Elastic

Sensitive to a change in price (most goods have elastic supply in the long run)

General Characteristics: Inelastic Supply

Hard to produce, high barriers to entry, high cost of specialized inputs, hard to switch from producing alternative goods, elasticity coefficient less than 1

General Characteristics: Elastic Supply

Easier to produce, low barriers to entry, low cost/generic inputs, easy to switch from producing alternative goods, elasticity coefficient greater than 1

Cross Price Elasticity of Demand

Measures how sensitive quantity demanded of one product is to a change in price of a different product

Consumer Surplus

The difference between what you’re willing to pay and what you actually pay