AP Microeconomics vocab!

Diminishing marginal returns

as input increases, the output of each input will be less than the previous input.

Marginal cost (& equation)

cost difference of one additional output (change in total cost / change in quantity)

Average fixed cost equation

FC / Q

Average Variable cost equation

VC / Q

Average total cost equation

TC / Q

marginal product

as input increases, output of each input will be less than the previous input.

derived demand

demand for a resource is derived from product demand

Least cost rule

marginal product of labor / labor price = marginal product of capital / capital price (MPL / PL = MPC / PC)

absolute advantage

advantage realized by a producer able to produce a greater output with a given amount of time / resources

comparative advantage

advantage realized by a producer able to produce a given output at a lower opportunity costcompared to other producers.

negative cross elasticity

the goods are compliments

positive cross elasticity

the goods are substitutes

cross elasticity equation

% change in Qd of good A / % change in Qs of good B

consumer surplus equation

price customers are willing to pay - actual price

producer surplus equation

actual price - price producer is willing to sell for

deadweight loss

transactions that should occur but don’t because of government intervention

imperfect price discrimination

different prices based on customers willingness to pay

perfect price discrimination

customers are charged the maximum they’re willing to pay for each unit sold, allowing the producer to capture all consumer surplus.

dominant strategy

strategy that has a better payoff regardless of opponents strategy

nash equilibrium

the point where both companies have no better option to improve their outcome given the strategy of the other player.

imperfect competition

occurs when companies offer similar competing products that aren’t perfect substitutes like differentiated products in a market with few sellers.

price takers

firms can’t charge a higher price than the equilibrium price. they have no market power.