AP Microeconomics Vocabulary

  1. Absolute advantage
    A firms ability to produce a good using fewer inputs than another firm.
  2. Accounting Profits
    Total revenue - total (explicit) costs = Accounting Profits

    Ex: TR= $200 TC= $100 AP= $100

    *Does not take in to account opportunity cost!*
  3. Allocative Efficiency (Socially Efficient)
    *Monopolies don't produce here*
  4. Antitrust Laws
    laws that prohibit conspiracies between companies formed to minimize competition

    *companies most commonly try to fix prices they sometimes do this by agreeing to reducing supply and this drives up the price*
  5. Average Fixed Cost (AFC)
    Fixed cost / Quantity sold

    Ex: FC= $500 QS= 100 AFC= $5
  6. Average Total Cost (ATC)
    Total cost / quantity of output

    Ex: TC= $600 QO= 300 ATC=2
  7. Average Variable Cost (AVC)
    Variable cost / quantity of output

    Ex: VC= $100 QO= 100 AVC= $1
  8. Budget Constraint
    A limit on the Consumption Bundles that a consumer can afford.
  9. Cartel
    A group of firms working together in unison

    Ex: drug cartel

    *firms usually try to cheat and not work in unison*
  10. Capital
    The equipment used to produce a good or service.

    Ex: a tractor is a capital in produce production
  11. Circular Flow Diagram
    A model that shows the interactions that take place between firms and households.
  12. Coase Theorem
    A theory that says externality problem can be solved on there own if private parties can bargain with each other.

    Ex: If a firm is polluting a river a river cleaning organization can clean it up thus the government would not need to get involved.
  13. Collusion
    An agreement between firms in the same market about the quantiles to produce or prices to charge.

    Ex: two airlines agree cut the number of flights sold by 20% each; this would raise the price of tickets and would raise revenue for each firm.

    *this is illegal*
  14. Common Resourse
    A good that is not excludable but is rival in consumption.

    Ex: A congested road
  15. Comparative Advantage
    A firms ability to produce a good at a lower opportunity cost than another producer
  16. Compensating Differential
    A difference in wage that arises because of the characteristics of differences in jobs

    Ex: A garbage man will get payed more than a beach attender
  17. Competitive market
    • A market with many buyers and sellers
    • sell the same product
    • market can easily be entered
    • buyers and sellers are price takers

    Ex: Market for Apples
  18. Complements
    Two goods that if there is an increase in one than that will lead to a decrees in demand for the other

    Ex: Ice cream and fudge
  19. Consumer Surplus
    Amount a buyer is willing to pay for a good - Amount the buyer actually pays

    Ex: ABWP= $50 ABAP= $20 CS= $30
  20. Cost Benefit Analysis
    A study that compares the cost and benefits providing a Public Good for society
  21. David Ricardo
  22. Deadweight Loss
    The fall in Total Surplus that is a result of a Market Failure

    Ex: A Tax on the good or service
  23. Diminishing Marginal Product
    When Marginal Product decreases as each extra good is produced
  24. Diseconomies of Scale
    In the long-run Average Total Cost (ATC) rises as the quantity of out put increases.
  25. Dominant Strategy
    The strategy is best for a player in a game no matter what the other player does

    *Connected to the prisoners dilemma*
  26. Economic Profit
    Total Revenue - Total cost (including explicit & implicit cost)

    Ex: TR= $600 TC= $200(explicit) $300(implicit) EP= $100

    *AP= $400*
  27. Economies of Scale
    Long-run Average Total Cost (ATC) falls as the quantity of output increases.
  28. Efficiency Wages
    Above Equilibrium wages paid by firms to increase worker productivity.

    *workers work harder because they know plenty of other people are waiting to take their job*
  29. Efficient Scale
    The quantity that minimizes Average Total Cost (ATC)

    * This is where most firms produce*
  30. Elaticity
    The measure of responsiveness of quantity demanded or quantity supplied to one of its detriments
  31. Equity
    The way of distributing economic prosperity fairly among the members of society
  32. Excludability
    A good a person can be prevented from using

    Ex: A ride at 6 flags
  33. Explicit Cost
    Input cost that require an actual outlay of money ignored to be obtained by a firm
  34. Exports
    Goods produced domestically and sold abroad.

    *Entertainment is a major American Export*
  35. Factors of Production
    Inputs used to produce goods and services.

    Ex: Cloth is a factor of production in producing shirts.
  36. Fixed Cost
    Cost that do not vary depending on the quantity being produced

    Ex: If a firm rents a factory weather they make 2 cookies or 2000 cookies the price of rent will remain the same
  37. Flat Tax
    Flat Rate Tax = a tax with a constant tax rate
  38. Free Rider
    A Person who receives the benefit of a good but does not pay for it
  39. Giffen Good
    A good where an increase in price results in the increase of demand.

    Ex: potatoes during the potato famine

    *goes against the law of supply and demand*
  40. Gini Coefficient
    Is a measure of statistical dispersion developed by the Italian statistician Corrado Gini´╗┐
  41. Human Captial
    The accumulation of investments in people

    Ex: Education and job training increases a persons human capital
  42. Implicit Costs
    Input costs that don't require an actual outlay of money by the firm
  43. Imports
    Goods produces abroad and sold domestically
  44. Income Effect
    The change in consumption as a result of a price change that moves the consumer to a higher or lower indifference curve
  45. Indifference Curve
    A curve that Shows consumption bundles that give a consumer the same level of satisfaction
  46. Inferior Good
    A good where an increase in income will result in a decrease of demand
  47. In-kind Transfers
    Transfers to the poor given in the form of goods and services rather than cash
  48. Laffer Curve
    • A theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation.
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  49. Laissez-faire Policy
    Policy where the government is not involved in businesses
  50. Lorenz Curve
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  51. Marginal Cost
    The increase in output that arises from an additional unit of out put
  52. Marginal rate of substitution
    The rate at witch a consumer is willing to trade one good for another
  53. Marginal Revenue
    The change in total revenue from an additional unit sold
  54. Marginal Revenue Product
    The extra revenue brought in by an extra output
  55. Market Failure
    When a market left on its own efficiently allocate resources
  56. Market Power
    The ability for a firm or a small group of firms to have substantial influence on the market prices.

    *Monopolies and collaborating Oligopolies can have market power*
  57. Minimum Wage
    The lowest hourly, daily or monthly wage that employers may legally pay to employees or workers
  58. Monopolistic Competition
    A firm where many firms sell products that are identical or very similar.
  59. Monopoly
    A firm that is the sole seller of a product without any close substitutes.
  60. Nash Equilibrium
    A situation where participants interacting with each-other choose their best strategy given the strategy that all the others have chosen.

    *Payoff matrix*
  61. Negative Externality
    An action of a product on consumers that imposes a negative side effect on a third party
  62. Normal Good
    A good where an increase in income results in an increase of demand.
  63. Normative Statement
    Claims that attempt to say how the world should be.

  64. Oligopoly
    A market structure where only a few sellers offer a similar or identical products

    *Can obtain market power*
  65. OPEC
    The Organization of the Petroleum Exporting Countries is an oil cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait,Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela
  66. Opportunity Cost
    what ever must be given up in order to obtain something.
  67. Pigovian (Corrective) Taxes
    A tax designed to lead private decision makers to tale account of the social cost that arise from a negative externally
  68. Positive Externality
    An action of a product on consumers that imposes a positive side effect on a third party
  69. Positive Statement
    Claims that describe the world as it is
  70. Price Ceiling
    A legal maximum on the price at which a good can be sold.
  71. Price Discrimination
    A business practice of selling the same good at different prices to different customers
  72. Price Elasticity of Supply
    A measure of how much the quantity demanded of a good responds to a change in the price of that good.

    * %change in quantity / %change in price*
  73. Price Elasticity of Supply
    A measure of how much the quantity supplyed of a good responds to a change in the price of that good

    * %change in supply / %change in price*
  74. Price Floor
    A legal minimum on the price at which a good can be sold.
  75. Prisoners' Dilemma
    A "game" between two captured prisoners that illustrates why cooperation is difficult to matin even when it is mutually beneficial.
  76. Producer Surplus
    Amount seller is paid for a good - Sellers cost of producing it

    Ex: ASP=$100 SCP=$10 PS=$90
  77. Production Possibilities Frontier
    A graph that shows the combinations of output that the economy can possibly produce given the available factors of production.
  78. Profit
    Total Revenue - Total cost

    Ex: TR= $400 TC=$300 P= $100
  79. Progressive Taxes
    A tax where high income taxpayers pay a larger fraction of their income than the low income payers do.
  80. Property Rights
    The ability of an individual to own and have control over a scares resource.
  81. Proportional tax
    A tax in which high and low income taxpayers pay the same fraction of their income.
  82. Public Good
    Goody that are not excludible or rival in consumption.

    Ex: Fireworks
  83. Regressive Tax
    A tax in which high income taxpayers pay a smaller fraction that low income taxpayers.
  84. Revenue
    All the money brought in by the selling of a good.
  85. Rivalry in Consumption
    One persons use of the good diminishes other people's use.
  86. Scarcity
    The Limited nature of Society's resources.
  87. Shortage
    Quantity demanded is greater that quantity demanded.
  88. Shutdown
    A firm will Shut down when Marginal Revenue (MR) is lower than Average Total Cost (ATC).
  89. Subsidy
    A form of financial assistance paid to a business or economic sector.
  90. Substitutes
    Two goods where an increase in the price of one will result in an increase of demand for the other
  91. Substitution Effect
    The change in consumption that results when a price chance moves the consumer along a given indifference curve a point with a new marginal rate of substitution.
  92. Sunk Cost
    A Cost that has already been committed and cannot be recovered.
  93. Surplus
    Quantity supplied is greater than quantity demanded.
  94. Tariff
    a Tax on goods produced abroad and sold domestically
  95. Tax Incidence
    How the burden of a tax is shared among participants in a market.
  96. Tax Wadge
    The deviation from equilibrium price/quantity as a result of a taxation, which results in consumers paying more, and suppliers receiving less.
  97. Tragedy of the Commons
    A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.
  98. Transaction Costs
    The cost that parties get when agreeing to and following through with an agreement.
  99. Utility
    A measure of happiness or satisfaction.
  100. Variable Cost
    Cost that do vary with the quantity of output produced
  101. World Price
    The rice of a good in the world market for that good.
Card Set
AP Microeconomics Vocabulary
101 microeconomics words