AP Economics Chapter 9 and 10 - Assignment Essays

question

substitution effect

answer

the change in the quantity of that good demanded as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive.

question

income effect

answer

the change in the quantity of that good demanded that results from a change in the consumer's purchasing power when the price of the good changes.

question

price elasticity of demand

answer

the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign).

question

midpoint method

answer

a technique for calculating the percent change by dividing the change in a variable by the average, or midpoint, of the initial and final values of that variable.

question

perfectly elastic

answer

when any price increase will cause the quantity demanded to drop to zero. When demand is perfectly elastic, the demand curve is a horizontal line.

question

elastic

answer

if the price elasticity of demand is greater than 1, inelastic if the price elasticity of demand is less than 1, and unit-elastic if the price

question

Total revenue

answer

the total value of sales of a good or service. It is equal to the price multiplied by the quantity sold.

question

cross-price elasticity of demand

answer

measures the effect of the change in one good's price on the quantity demanded of the other good. It is equal to the percent change in the quantity demanded of one good divided by the percent change in the other good's price.

question

income elasticity of demand

answer

the percent change in the quantity of a good demanded when a consumer's income changes divided by the percent change in the consumer's income; it measures how changes in income affect the demand for a good.

question

income-elastic

answer

if the income elasticity of demand for that good is greater than 1.

question

income-inelastic. if the income elasticity of demand for that good is positive but less than 1.

answer

...

question

price elasticity of supply

answer

a measure of the responsiveness of the quantity of a good supplied to changes in the price of that good. It is the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve.

question

perfectly inelastic supply

answer

when the price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied. A perfectly inelastic supply curve is a vertical line.

question

perfectly elastic supply. if the quantity supplied is zero below some price and approaches infinity above that price. A perfectly elastic supply curve is a horizontal line.

answer

if the quantity supplied is zero below some price and approaches infinity above that price. A perfectly elastic supply curve is a horizontal line.

question

willingness to pay

answer

the maximum price at which he or she would buy that good.

question

Individual consumer surplus

answer

the net gain to an individual buyer from the purchase of a good. It is equal to the difference between the buyer's willingness to pay and the price paid.

question

Total consumer surplus

answer

the sum of the individual consumer surpluses of all the buyers of a good in a market.

question

consumer surplus

answer

often used to refer to both individual and total consumer surplus.

question

cost

answer

the lowest price at which he or she is willing to sell a good.

question

Individual producer surplus

answer

the net gain to an individual seller from selling a good. It is equal to the difference between the price received and the seller's cost.

question

Total producer surplus

answer

the sum of the individual producer surpluses of all the sellers of a good in a market.

question

producer surplus

answer

used to refer to both individual and total producer surplus.

question

Total surplus

answer

the total net gain to consumers and producers from trading in a market. It is the sum of consumer and producer surplus.

question

regressive tax

answer

rises less than in proportion to income.

question

proportional tax

answer

rises in proportion to income.

question

progressive tax

answer

rises more than in proportion to income.

question

excise tax

answer

a tax on sales of a particular good or service.

question

Tax incidence

answer

the distribution of the tax burden.

question

deadweight loss

answer

the decrease in total surplus resulting from the tax, minus the tax revenues generated.

question

lump-sum tax

answer

a tax of a fixed amount paid by all taxpayers.

question

administrative costs

answer

are the resources used by the government to collect the tax, and by taxpayers to pay (or to evade) it, over and above the amount collected.

question

Utility

answer

a measure of personal satisfaction.

question

util

answer

a unit of utility.

question

marginal utility

answer

the change in total utility generated by consuming one additional unit of that good or service.

question

marginal utility curve

answer

shows how marginal utility depends on the quantity of a good or service consumed.

question

principle of diminishing marginal utility

answer

each successive unit of a good or service consumed adds less to total utility than does the previous unit.

question

budget constraint

answer

limits the cost of a consumer's consumption bundle to no more than the consumer's income.

question

consumption possibilities

answer

the set of all consumption bundles that are affordable, given the consumer's income and prevailing prices.

question

budget line (BL)

answer

shows the consumption bundles available to a consumer who spends all of his or her income.

question

optimal consumption bundle

answer

the consumption bundle that maximizes the consumer's total utility given his or her budget constraint.

question

marginal utility per dollar

answer

the additional utility from spending one more dollar on that good or service.

question

optimal consumption rule

answer

says that in order to maximize utility, a consumer must equate the marginal utility per dollar spent on each good and service in the consumption bundle.

question

explicit cost

answer

acost that involves actually laying out money.

question

implicit cost

answer

does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are forgone.

question

accounting profit

answer

the business's total revenue minus the explicit cost and depreciation.

question

economic profit

answer

the business's total revenue minus the opportunity cost of its resources. It is usually less than the accounting profit.

question

implicit cost of capital

answer

the opportunity cost of the capital used by a business—the income the owner could have realized from that capital if it had been used in its next best alternative way.

question

normal profit

answer

It is an economic profit just high enough to keep a firm engaged in its current activity.

question

principle of marginal analysis

answer

every activity should continue until the marginal benefit equals the marginal cost.

question

Marginal revenue

answer

the change in total revenue generated by an additional unit of output.

question

optimal output rule

answer

says that profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.

question

marginal cost curve

answer

shows how the cost of producing one more unit depends on the quantity that has already been produced.

question

marginal revenue curve

answer

shows how marginal revenue varies as output varies.

question

production function

answer

the relationship between the quantity of inputs a firm uses and the quantity of output it produces.

question

fixed input

answer

an input whose quantity is fixed for a period of time and cannot be varied.

question

variable input

answer

an input whose quantity the firm can vary at any time.

question

long run

answer

the time period in which all inputs can be varied.

question

short run

answer

the time period in which at least one input is fixed.

question

total product curve

answer

shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.

question

marginal product

answer

the additional quantity of output produced by using one more unit of that input.

question

diminishing returns to an input

answer

when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.

question

fixed cost (FC)

answer

a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.

question

variable cost (VC)

answer

cost that depends on the quantity of output produced. It is the cost of the variable input.

question

total cost (TC)

answer

the sum of the fixed cost and the variable cost of producing that quantity of output.

question

total cost curve

answer

shows how total cost depends on the quantity of output.

question

average total cost (ATC)

answer

often referred to simply as the average cost, is the total cost divided by the quantity of output produced.

question

U-shaped average total cost curve

answer

falls at low levels of output and then rises at higher levels.

question

average fixed cost (AFC)

answer

the fixed cost per unit of output.

question

average variable cost (AVC)

answer

the variable cost per unit of output.

question

minimum-cost output

answer

the quantity of output at which the average total cost is lowest—it corresponds to the bottom of the U-shaped average total cost curve.

question

average product

answer

is the total product divided by the quantity of the input.

question

average product curve

answer

shows the relationship between the average product and the quantity of the input.

question

long-run average total cost curve (LRATC)

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output.

question

economies of scale

answer

when long-run average total cost declines as output increases.

question

increasing returns to scale

answer

when output increases more than in proportion to an increase in all inputs. For example, doubling all inputs would cause output to more than double.

question

minimum efficient scale

answer

the smallest quantity at which a firm's long-run average total cost is minimized.

question

diseconomies of scale

answer

when long-run average total cost increases as output increases.

question

decreasing returns to scale

answer

when output increases less than in proportion to an increase in all inputs.

question

constant returns to scale

answer

when output increases directly in proportion to an increase in all inputs.

question

sunk cost

answer

a cost that has already been incurred and is nonrecoverable. A sunk cost should be ignored in a decision about future actions.

question

price-taking firm

answer

a firm whose actions have no effect on the market price of the good or service it sells.

question

price-taking consumer

answer

...

question

Price taking consumer

answer

a consumer whose actions have no effect on the market price of the good or service he or she buys.

question

perfectly competitive market

answer

a market in which all market participants are price-takers.

question

perfectly competitive industry

answer

an industry in which firms are price-takers.

question

market share

answer

the fraction of the total industry output accounted for by that firm's output.

question

standardized product

answer

also known as a commodity, when consumers regard the products of different firms as the same good.

question

free entry and exit

answer

An industry has free entry and exit when new firms can easily enter into the industry and existing firms can easily leave the industry.

question

monopolist

answer

the only producer of a good that has no close substitutes. An industry controlled by a monopolist is known as a monopoly.

question

barrier to entry

answer

To earn economic profits, a monopolist must be protected by ... something that prevents other firms from entering the industry.

question

natural monopoly

answer

exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output.

question

patent

answer

gives an inventor a temporary monopoly in the use or sale of an invention.

question

answer

gives the copyright holder for a literary or artistic work the sole right to profit from that work for a specified period of time.

question

oligopoly

answer

an industry with only a small number of firms. A producer in such an industry is known as an oligopolist.

question

imperfect competition

answer

When no one firm has a monopoly, but producers nonetheless realize that they can affect market prices, an industry is characterized by ... .

question

Concentration ratios

answer

measure the percentage of industry sales accounted for by the "X" largest firms, for example the four-firm concentration ratio or the eight-firm concentration ratio.

question

Herfindahl-Hirschman Index

answer

the square of each firm's share of market sales summed over the industry. It gives a picture of the industry market structure.

question

Monopolistic competition

answer

a market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run.

1 of 98

question

substitution effect

answer

the change in the quantity of that good demanded as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive.

question

income effect

answer

the change in the quantity of that good demanded that results from a change in the consumer's purchasing power when the price of the good changes.

question

price elasticity of demand

answer

the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign).

question

midpoint method

answer

a technique for calculating the percent change by dividing the change in a variable by the average, or midpoint, of the initial and final values of that variable.

question

perfectly elastic

answer

when any price increase will cause the quantity demanded to drop to zero. When demand is perfectly elastic, the demand curve is a horizontal line.

question

elastic

answer

if the price elasticity of demand is greater than 1, inelastic if the price elasticity of demand is less than 1, and unit-elastic if the price

question

Total revenue

answer

the total value of sales of a good or service. It is equal to the price multiplied by the quantity sold.

question

cross-price elasticity of demand

answer

question

income elasticity of demand

answer

question

income-elastic

answer

if the income elasticity of demand for that good is greater than 1.

question

income-inelastic. if the income elasticity of demand for that good is positive but less than 1.

answer

...

question

price elasticity of supply

answer

question

perfectly inelastic supply

answer

when the price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied. A perfectly inelastic supply curve is a vertical line.

question

perfectly elastic supply. if the quantity supplied is zero below some price and approaches infinity above that price. A perfectly elastic supply curve is a horizontal line.

answer

if the quantity supplied is zero below some price and approaches infinity above that price. A perfectly elastic supply curve is a horizontal line.

question

willingness to pay

answer

the maximum price at which he or she would buy that good.

question

Individual consumer surplus

answer

the net gain to an individual buyer from the purchase of a good. It is equal to the difference between the buyer's willingness to pay and the price paid.

question

Total consumer surplus

answer

the sum of the individual consumer surpluses of all the buyers of a good in a market.

question

consumer surplus

answer

often used to refer to both individual and total consumer surplus.

question

cost

answer

the lowest price at which he or she is willing to sell a good.

question

Individual producer surplus

answer

the net gain to an individual seller from selling a good. It is equal to the difference between the price received and the seller's cost.

question

Total producer surplus

answer

the sum of the individual producer surpluses of all the sellers of a good in a market.

question

producer surplus

answer

used to refer to both individual and total producer surplus.

question

Total surplus

answer

the total net gain to consumers and producers from trading in a market. It is the sum of consumer and producer surplus.

question

regressive tax

answer

rises less than in proportion to income.

question

proportional tax

answer

rises in proportion to income.

question

progressive tax

answer

rises more than in proportion to income.

question

excise tax

answer

a tax on sales of a particular good or service.

question

Tax incidence

answer

the distribution of the tax burden.

question

deadweight loss

answer

the decrease in total surplus resulting from the tax, minus the tax revenues generated.

question

lump-sum tax

answer

a tax of a fixed amount paid by all taxpayers.

question

administrative costs

answer

are the resources used by the government to collect the tax, and by taxpayers to pay (or to evade) it, over and above the amount collected.

question

Utility

answer

a measure of personal satisfaction.

question

util

answer

a unit of utility.

question

marginal utility

answer

the change in total utility generated by consuming one additional unit of that good or service.

question

marginal utility curve

answer

shows how marginal utility depends on the quantity of a good or service consumed.

question

principle of diminishing marginal utility

answer

each successive unit of a good or service consumed adds less to total utility than does the previous unit.

question

budget constraint

answer

limits the cost of a consumer's consumption bundle to no more than the consumer's income.

question

consumption possibilities

answer

the set of all consumption bundles that are affordable, given the consumer's income and prevailing prices.

question

budget line (BL)

answer

shows the consumption bundles available to a consumer who spends all of his or her income.

question

optimal consumption bundle

answer

the consumption bundle that maximizes the consumer's total utility given his or her budget constraint.

question

marginal utility per dollar

answer

the additional utility from spending one more dollar on that good or service.

question

optimal consumption rule

answer

says that in order to maximize utility, a consumer must equate the marginal utility per dollar spent on each good and service in the consumption bundle.

question

explicit cost

answer

acost that involves actually laying out money.

question

implicit cost

answer

does not require an outlay of money; it is measured by the value, in dollar terms, of benefits that are forgone.

question

accounting profit

answer

the business's total revenue minus the explicit cost and depreciation.

question

economic profit

answer

the business's total revenue minus the opportunity cost of its resources. It is usually less than the accounting profit.

question

implicit cost of capital

answer

the opportunity cost of the capital used by a business—the income the owner could have realized from that capital if it had been used in its next best alternative way.

question

normal profit

answer

It is an economic profit just high enough to keep a firm engaged in its current activity.

question

principle of marginal analysis

answer

every activity should continue until the marginal benefit equals the marginal cost.

question

Marginal revenue

answer

the change in total revenue generated by an additional unit of output.

question

optimal output rule

answer

says that profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.

question

marginal cost curve

answer

shows how the cost of producing one more unit depends on the quantity that has already been produced.

question

marginal revenue curve

answer

shows how marginal revenue varies as output varies.

question

production function

answer

the relationship between the quantity of inputs a firm uses and the quantity of output it produces.

question

fixed input

answer

an input whose quantity is fixed for a period of time and cannot be varied.

question

variable input

answer

an input whose quantity the firm can vary at any time.

question

long run

answer

the time period in which all inputs can be varied.

question

short run

answer

the time period in which at least one input is fixed.

question

total product curve

answer

shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input.

question

marginal product

answer

the additional quantity of output produced by using one more unit of that input.

question

diminishing returns to an input

answer

when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input.

question

fixed cost (FC)

answer

a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.

question

variable cost (VC)

answer

cost that depends on the quantity of output produced. It is the cost of the variable input.

question

total cost (TC)

answer

the sum of the fixed cost and the variable cost of producing that quantity of output.

question

total cost curve

answer

shows how total cost depends on the quantity of output.

question

average total cost (ATC)

answer

often referred to simply as the average cost, is the total cost divided by the quantity of output produced.

question

U-shaped average total cost curve

answer

falls at low levels of output and then rises at higher levels.

question

average fixed cost (AFC)

answer

the fixed cost per unit of output.

question

average variable cost (AVC)

answer

the variable cost per unit of output.

question

minimum-cost output

answer

the quantity of output at which the average total cost is lowest—it corresponds to the bottom of the U-shaped average total cost curve.

question

average product

answer

is the total product divided by the quantity of the input.

question

average product curve

answer

shows the relationship between the average product and the quantity of the input.

question

long-run average total cost curve (LRATC)

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output.

question

economies of scale

answer

when long-run average total cost declines as output increases.

question

increasing returns to scale

answer

when output increases more than in proportion to an increase in all inputs. For example, doubling all inputs would cause output to more than double.

question

minimum efficient scale

answer

the smallest quantity at which a firm's long-run average total cost is minimized.

question

diseconomies of scale

answer

when long-run average total cost increases as output increases.

question

decreasing returns to scale

answer

when output increases less than in proportion to an increase in all inputs.

question

constant returns to scale

answer

when output increases directly in proportion to an increase in all inputs.

question

sunk cost

answer

a cost that has already been incurred and is nonrecoverable. A sunk cost should be ignored in a decision about future actions.

question

price-taking firm

answer

a firm whose actions have no effect on the market price of the good or service it sells.

question

price-taking consumer

answer

...

question

Price taking consumer

answer

a consumer whose actions have no effect on the market price of the good or service he or she buys.

question

perfectly competitive market

answer

a market in which all market participants are price-takers.

question

perfectly competitive industry

answer

an industry in which firms are price-takers.

question

market share

answer

the fraction of the total industry output accounted for by that firm's output.

question

standardized product

answer

also known as a commodity, when consumers regard the products of different firms as the same good.

question

free entry and exit

answer

An industry has free entry and exit when new firms can easily enter into the industry and existing firms can easily leave the industry.

question

monopolist

answer

the only producer of a good that has no close substitutes. An industry controlled by a monopolist is known as a monopoly.

question

barrier to entry

answer

To earn economic profits, a monopolist must be protected by ... something that prevents other firms from entering the industry.

question

natural monopoly

answer

exists when economies of scale provide a large cost advantage to a single firm that produces all of an industry's output.

question

patent

answer

gives an inventor a temporary monopoly in the use or sale of an invention.

question

answer

gives the copyright holder for a literary or artistic work the sole right to profit from that work for a specified period of time.

question

oligopoly

answer

an industry with only a small number of firms. A producer in such an industry is known as an oligopolist.

question

imperfect competition

answer

When no one firm has a monopoly, but producers nonetheless realize that they can affect market prices, an industry is characterized by ... .

question

Concentration ratios

answer

measure the percentage of industry sales accounted for by the "X" largest firms, for example the four-firm concentration ratio or the eight-firm concentration ratio.

question

Herfindahl-Hirschman Index

answer

the square of each firm's share of market sales summed over the industry. It gives a picture of the industry market structure.

question

Monopolistic competition

answer

a market structure in which there are many competing firms in an industry, each firm sells a differentiated product, and there is free entry into and exit from the industry in the long run.

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