AP Microeconomics - Memorization Test

scarcity

Limited quantities of resources to meet unlimited wants

Opportunity Cost

the most desirable alternative given up as the result of a decision

absolute advantage

produce more with fewer inputs

comparative advantage

produce a good at a lower opportunity cost

command economy

the government controls the economy, government owns the resources

market economy

no government, controlled by supply and demand

mixed economy

an economic system combining private and public

traditional economy

economy based on traditions, custom, and culture

law of demand

as price increases, quantity demanded decreases

law of supply

as price increases, quantity supplied increases

determinants of demand

(TRIBE)

1. Tastes

2. Related Goods

3. Income

4. Buyers (#)

5. Expectations

substitutes

increase in price of good A causes a increase in quantity demanded of good B

complements

increase in price of good A, causes a decrease in guantity demanded of good B

inferior good

as income increases, quantity demanded decreases

normal good

as income increases, quantity demanded increases

determinants of supply

(IRENT)

1. Inputs

2. Related Goods

3. Expectations

4. Number of Sellers

5. Technology

elasticity

measure of responsiveness to change

consumer surplus

consumers WTP - price

producer surplus

price - cost to produce

allocative efficiency

goods and services most highly valued by society, MC=D

utility

happiness or satisfaction

diminishing marginal utility

total utility increases at a decreasing rate

production function

quantity of output based on input

diminishing returns

Qs inputs increase, output increases at a decreasing rate

economies of scale

Long Run ATC decreases as quantity increases

accounting profit

total revenue - explicit costs

economic profit

TR - (explicit and implicit costs)

profit maximization

MR=MC

perfect competition

1. Many sellers and buyers

2. Identical Goods

3. easy entry or exit

4. zero LR profit

5. no advertising necessary

Monopoly

1. one seller

2. price makers

3. unique product

4. LR profit

5. barriers to entry

Natural Monopoly

1. One seller expenses

2. economies of scale

3. more efficient

monopsony

1. One buyer

2. Monopoly of labor market

Oligopoly

1. few sellers

2. some barriers to entry

3. similar/identical goods

collusion/cartel

acting in unison (like a monopoly)

game theory

how people behave in strategic situations

dominant strategy

best strategy regardless of the others players strategys

nash equilibrium

a situation in which each firm chooses the best strategy, given the strategies chosen by other firms (same quadrant)

monopolistic competition

1. many buyers/sellers

2. similar product

3. zero LR profit

derived demand

demand for factors of product depends on demand for product

marginal rev product

additional rev. generated by using 1 more unit of input

externalities

uncompensated impact of a persons actions on a 3rd party

public goods

non-rival, non-excludable; free riders

private goods

rival, excludable

natural monopoly (club goods)

non-rival, excludable

common resources

rival, nonexcludable; tragedy of commons

lorenz curve

the curve that illustrates income distribution

gini coefficient

coefficient that measures income inequality (0 = equal, 1 = inequal)

elasticity equation

% change of Qd/% change of P

income elasticity equation

% change of Qd/% change of income

cross price elasticity equation

% change in Qd A/% change of P of B

marginal utility per dollar equation

MU good A/P good A = MU good B/ P good B

ATC equation

TC/Q

AFC equation

FC/Q

AVC equation

VC/Q

MC

change in TC/change in Q

MR

change in TR/change in Q

hiring rule

MRP=MFC

Draw the gaphs for Supply, Demand Equilibrium (label price ceiling, floor, shortage and surplus)

Draw the graph for tax incidence (label CS, PS, Gov Rev, and DWL)

Draw the graph for Tariff (S & D, WP, tariff, CS, PS, GR, and DWL)

Draw the graph of production function

draw the cost curve graph

draw perfectly competitive market and firm

draw profit max monopoly graph

draw monopolistic competition

draw labor market (side by side)

draw negative ex

Draw positive externality