AP Microeconomics Unit Study Guide Flashcards

These flashcards cover key concepts and terms found in the AP Microeconomics Unit Study Guide, reinforcing understanding of economic principles and theories.

What does scarcity mean in economics?

Scarcity refers to the condition where unlimited wants exceed limited resources, forcing choices.

What is the key formula that represents decision-making in economics?

The key formula is MB=MC, indicating that decisions are made where Marginal Benefit equals Marginal Cost.

How does the demand curve behave according to the law of demand?

The demand curve slopes downward; as price increases, quantity demanded decreases.

What is the difference between a change in demand and a change in the quantity demanded?

A change in demand shifts the entire demand curve, while a change in quantity demanded results from a price change and moves along the curve.

What factors can cause a shift in the supply curve?

Factors include Input costs, Number of sellers, New technology, Expectations, Profit from alternatives, Taxes/subsidies (ISNEPT).

What defines a perfectly competitive market?

A perfectly competitive market has many small firms, identical products, free entry and exit, and perfect information.

What does the term 'monopoly' mean?

A monopoly refers to a market structure where a single seller dominates the market with no close substitutes and very high barriers to entry.

Explain the concept of price discrimination.

Price discrimination is charging different prices to different customers for the same good, requiring market power and the ability to separate market segments.

What is Marginal Revenue Product (MRP) in labor markets?

MRP is the additional revenue generated from hiring one more worker, calculated as MRP = MP × MR.

What is an externality?

An externality is a cost or benefit incurred by a third party not involved in a transaction, which can be positive or negative.

What is the 'free rider problem'?

The free rider problem occurs when individuals benefit from a resource without contributing to its cost, leading to underprovision of public goods.

What are the implications of a price ceiling set below equilibrium?

A price ceiling below equilibrium creates a shortage in the market.

How do elasticities affect consumer behavior?

Elasticity measures how responsive consumers are to price changes; high elasticity indicates significant changes in quantity demanded with price changes.

What is the optimal hiring decision in a competitive labor market?

A firm should hire workers until Marginal Revenue Product (MRP) equals Marginal Resource Cost (MRC).

What is the significance of the Production Possibilities Curve (PPC)?

The PPC illustrates the maximum efficient combinations of two goods that can be produced with fixed resources and technology.

What is deadweight loss (DWL)?

DWL refers to the loss of economic efficiency when equilibrium is not achieved or when externalities are present.

Explain the concept of 'derived demand' in factor markets.

Derived demand is the demand for labor (or any factor of production) that arises from the demand for the goods and services produced.

What does a downward-sloping demand curve signify?

It signifies that as the price decreases, the quantity demanded increases, reflecting consumer behavior.