AP Microeconomics Unit 2 Flashcards

Vocabulary flashcards for AP Microeconomics Unit 2 Review.

Law of Demand

As price increases, quantity demanded decreases (inverse relationship).

Law of Supply

As price increases, quantity supplied increases (direct relationship).

Market Equilibrium

Where quantity demanded equals quantity supplied.

Surplus

When quantity supplied exceeds quantity demanded; price is above equilibrium.

Shortage

When quantity demanded exceeds quantity supplied; price is below equilibrium.

Determinants of Demand (TRIBE)

Tastes, Related goods (substitutes & complements), Income, Number of Buyers, Expectations.

Determinants of Supply (ROTTEN)

Resource prices, Other goods, Technology, Taxes & subsidies, Expectations, Number of sellers.

Change in Quantity Demanded

Movement along the demand curve due to a price change.

Change in Demand

A shift of the entire demand curve due to non-price factors.

Change in Quantity Supplied

Movement along the supply curve due to a price change.

Change in Supply

A shift of the entire supply curve due to non-price factors.

Price Ceiling

A legal maximum price set below equilibrium; causes a shortage.

Price Floor

A legal minimum price set above equilibrium; causes a surplus.

Consumer Surplus

Difference between what a consumer is willing to pay and what they actually pay.

Producer Surplus

Difference between the price a producer receives and the minimum they're willing to accept.

Total Surplus

Sum of consumer and producer surplus; maximized at equilibrium.

Deadweight Loss

Loss of efficiency due to underproduction or overproduction.

Elasticity of Demand

Measures how responsive quantity demanded is to a price change.

Elastic vs. Inelastic Demand

Elastic: PED > 1 (sensitive to price); Inelastic: PED < 1 (not sensitive to price).

Total Revenue Test

If price and total revenue move in opposite directions, demand is elastic; if they move together, demand is inelastic.

Cross-Price Elasticity

Measures responsiveness of demand for one good when the price of another good changes.

Income Elasticity of Demand

Measures responsiveness of demand to a change in consumer income.

Elasticity of Supply

Measures how much quantity supplied responds to a change in price.