Ap Micro vocab

Substitute

Goods/services that can replace eachother

Complements

goods/services that are used together

normal goods

goods for which demand increases when consumer income increases. (ex: oreos)

inferior goods

Goods in which the demand decreases when consumer income increases (ex: off brand oreos)

inelastic

demand or supply changes a little when price changes. (ex: medicine)

elastic

demand or supply changes a lot when price changes (ex: luxury cars).

law of diminishing marginal return

as more workers are added, with the same number of machines, less extra output each time.

fixed cost

costs that don’t change with output (like rent)

variable cost

costs change with output (like wages or materials).

long run

firm can adjust resources

short run

firm has fixed resources

economies of scale

as a business produces more, the cost per unit goes down. (ex: A factory buying materials in bulk gets a discount)

accounting profit

total revenue - explicit cost

economic profit

total revenue - (explicit + implicit)

perfectly competitive market

a market with many small firms that sell identical products, and no single firm can influence the market price.

price takers

no control over prices, have to take price given my market

monopoly

one business dominates entire industry (ex: google)

oligopoly

a few businesses dominate a market (ex: airlines)

monopolistic competition

many sellers in a market (ex: fast food)

price discrimination

Identifying consumers on willingness to pay

collusion

best strategy for both businesses

marginal resource cost

cost of hiring one more worker

monopsony

single buyer of labor (ex: A hospital is the only employer of nurses in a small town.)