AP Microeconomics: Market Structures, Externalities, and Trade

What is the formula for economic profit?

Total revenue minus total cost (explicit costs + implicit costs).

What is the difference between long run and short run in economics?

Long run refers to the time it takes to change all fixed costs, while short run involves at least one fixed cost.

What happens to average variable cost (AVC) in the presence of diseconomies of scale?

AVC increases as output increases.

What characterizes perfect competition?

Goods are homogeneous, many buyers and sellers exist, and there is free entry and exit.

What is the effect of a price ceiling?

It is a maximum price, usually set below equilibrium, leading to shortages.

What is a price floor?

A minimum price set above equilibrium that leads to surpluses.

How does taxation affect supply and demand curves?

Tax creates a wedge between supply and demand curves, potentially leading to a shortage.

What is the relationship between elasticity and tax burden?

The more inelastic side of the market bears a greater burden of the tax.

What is the condition for profit maximization?

Marginal revenue equals marginal cost.

What are public goods characterized by?

They are non-excludable and non-rival, leading to free rider problems.

What is the impact of tariffs on imports?

Tariffs increase production in the U.S. but may harm consumers by raising prices.

What is the effect of subsidies on supply curves?

Subsidies shift the supply curve to the right, creating a surplus.

What are externalities in economics?

Externalities are costs or benefits incurred by third parties not involved in a transaction.

What is the difference between common resources and private goods?

Common resources are rival and non-excludable, while private goods are both rival and excludable.

What is the outcome of international trade for consumers and producers?

Imports benefit consumers but harm producers, while exports benefit producers but harm consumers.

What does market efficiency imply?

It implies little to no deadweight loss (DWL).

What happens to consumer surplus when demand shifts?

Consumer surplus becomes ambiguous.

what happens to total welfare when demand shifts?

consumer surplus is ambiguous

what happens to total welfare when supply shifts?

producer surplus is ambiguous

what happens to dwl and tax revenue if a market is MORE elastic?

more dwl and less tax revenue

Who will bear the burden of the tax if the supply is inelastic?

sellers

who will bear the burden of the tax if the demand is inelastic?

buyers

does a subsidy create surplus or shortage?

SURPLUS

do exports in international trade help consumer surplus or producer surplus?

help producer surplus

do imports in national trade help consumers or producers?

consumer surplus

TARRIFFS on imports help what surplus?

producers

what can fix a positive extranality?

a subsidy

what can fix a negative extranality

taxes

what is a public good, and what are some examples?

Non-excludable, non-rival

National Defense

what is a common good, and what are some examples?

Non-excludable and rival

water aquifers, ozone layer, whales

what is a club good, and what are some examples?

Excludable, and non-rival

a country club

what is a private good and what are some examples?

excludable, rival

education, fire departments, trash removal