AP Microeconomics Unit 6: Key Terms & Definitions

private cost

the cost borne by the producer of a good or service

market power

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

social costs

the sum of the internal costs and external costs of a market activity

marginal social benefit

The extra benefit or utility to society of consuming an additional unit of output, including both the private benefit and the external benefits.

marginal social cost

The extra cost to society of producing an additional unit of output, including both the private cost and the external costs.

marginal private cost

the cost of producing an additional unit of a good or service that is borne by the producer of that good or service

marginal private benefit

The benefit from an additional unit of a good or service that the consumer of that good or service receives.

Externalities

economic side effects or by-products that affect an uninvolved third party; can be negative or positive

negative externality

a cost that is suffered by a third party as a result of an economic transaction

positive externality

a benefit that is enjoyed by a third-party as a result of an economic transaction

transaction costs

the costs that parties incur in the process of agreeing to and following through on a bargain

external benefit

a benefit that an individual or firm confers on others without receiving compensation

Subsidies

a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

Non-excludable

A characteristics of some goods where it is not possible to exclude someone from using a good, because it is not possible to charge a price. It is one of the characteristics of public goods.

productive inefficiency

The condition where resources are not used at their most efficient levels leading to goods being produced in a way that is not at the lowest possible cost to the producer

Allocative inefficiency

when resources are not used to produce the amount of goods and services wanted by consumers

dynamic inefficiency

When companies have little to no incentive to innovate, leading to increased costs of production and increased price of the good/service

Lorenz Curve

Graph showing how much the actual distribution of income differs from an equal distribution

Gini Coefficient

A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income.

income inequality

the unequal distribution of household or individual income across the various participants in an economy

Wealth Inequality

the unequal distribution of assets within a population

Flat Tax

a tax system in which all people pay the same percentage of their income

Progressive Tax

A tax graduated so that people with higher incomes pay larger fraction of their income than people with lower incomes.

Regressive Tax

A tax for which the percentage of income paid in taxes decreases as income increases

Economic Efficiency

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

Private Benefit

the benefit received by the consumer or producer of a good or service in an economic transaction

free rider

a person who receives the benefit of a good but avoids paying for it

Private goods

goods that are both excludable and rival in consumption

Public goods

a commodity or service that is provided to all members of the public without profit to the supplier, either the government or a private individual/organization.

Excludable

the property of a good whereby a person can be prevented from using it