AP Micro

Chapter 9

Competitive market

A market structure where numerous buyers and sellers operate, ensuring that no single buyer or seller can influence the market price.

Quantity demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price.

Demand curve

A graphical representation showing the relationship between the price of a good and the quantity demanded.

Law of demand

An economic principle stating that, all else being equal, as the price of a good decreases, the quantity demanded increases.

Change in demand

A shift in the entire demand curve to the left or right due to factors such as consumer preferences, income, or prices of related goods.

Substitutes

Goods that can be used in place of each other, where an increase in the price of one leads to an increase in demand for the other.

Complements

Goods that are typically consumed together, where an increase in the price of one leads to a decrease in demand for the other.

Normal good

A good for which demand increases as consumer income rises.

Market-clearing price

The price at which the quantity supplied equals the quantity demanded, leading to no surplus or shortage.

Inelastic Demand

Quantity demanded of a good or service changes very little in response to price changes(insensitive). This typically occurs for essential goods.

Elastic Demand

Quantity demanded of a good or service responds significantly to changes in its price. For non-essential items or luxury goods.

Price Elasticity of Demand (PED)

Measures how sensitive quantity demanded is to a change in price

Price Elasticity of Supply (PES)

Measures how sensitive quantity supplied is to a change in price

Cross-Price Elasticity of Demand (XED)

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

Income Elasticity of Demand

Measures how sensitive quantity demanded is to a change in income

World Price

Countries can buy products at their own domestic price or they can buy the products at a cheaper world price

Tariff

Tax on imports that increases the world price

Quota

A limit on number of imports.

Excise Tax

A tax levied on specific goods and services, often aimed at reducing consumption of harmful items such as tobacco or alcohol.

Tax Incidence

Analysis of the effects of a tax on the distribution of economic welfare

Utility Maximizing Rule

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