AP Microeconomics (Final) Review

the study of how society allocates scarce resources

the branch of economics that studies national and international economics

the branch of economics that studies how people and firms make decisions

also called "factors of production," these are commonly grouped into the four categories: labor, physical capital,land(natural resources), and entrepreneurial(企业家的) ability

the resources that includes equipment, machinery, buildings, and tools

the imbalance between limited productive resources and unlimited human wants

the reality of scare resources implies that individuals, firms,and governments are constantly faced with difficult choices that involve benefits an costs

the value of the sacrifice made to pursue a course of action

the next unit, or increment(增长), of an action

the additional benefit received from the consumption of the next unit of a good or service

the additional cost of producing one more unit of output

making decisions based upon weighing the marginal benefits and costs of that action. The rational decision maker will choose an action if the marginal benefit is greater that or equal to the marginal cost(MB>=MC)

the different quantity of goods that an economy can produce with a given amount of scare resources.

as more of a good is produced, the greater is its opportunity (or marginal ) cost

the ability to produce more of a good than all other producers

the ability to produce a good at a lower opportunity cost than all other producers.

production of goods or performance of tasks based upon comparative advantage

production of maximum output for a given level of technology and resources

production of the combination of goods and service that provides the most net benefit to society; achieved when the marginal benefit equals the marginal cost(MB=MC) of the next unit.

the increase in an economy's production possibilities over time

a system for coordinating(协调) society's productive activities

an economic system in which resources are allocated through the decentralized(分散化的) decisions of firms and consumers

the graphical device used to show the production possibilities of two goods

all else equal, when the price of a good rises, the quantity demanded of that good falls

the price of a given quantity at which consumers will demand that quantity

the assumption that all other variables are held constant so we can predict how a chang in one variable affects a second. Also sometimes referred to as the ceteris paribus assumption.

the change in quantity demanded resulting from a change in the price of one good relative to the price of other goods

due to a higher price, the change in quantity demanded that results from a change in the consumer's purchasing power (or real income)

a table showing quantity demanded for a good at various prices

shows the quantity of a good demanded at all prices

the external factors that shift demand to the left or right

a good for which demand increases with an increase in consumer income

a good for which demand decreases with an increase in consumer income

two goods are consumer substitutes if they provide essentially the same utility to the consumer

two goods that provide more utility when consumed together than when consumed separately

all else equal, when the price of a good rises, the quantity supplied of that good rises

a table showing quantity supplied for a good at various prices

shows the quantity of a good supplied at all prices

the external factors that shift supply to the left or right

this exists at the only price where the quantity supplied equals the quantity demanded. or it is the only quantity where the price consumers are willing to pay is exactly the price producers are willing to accept

a situation in which, at the going market priec, the quantity demanded exceeds the quantity supplied.

any price where the quantity demanded does not equal the quantity supplied

a situation in which, at the going market price, the quantity supplied exceeds the quantity demanded

the sum of consumer surplus and producer surplus

the difference between buyer's willingness to pay and the price actually paid

the difference between the price received and the marginal cost of producing the good

measures the sensitivity, or responsiveness, of a choice to a change in an external factor

-measures the sensitivity of consumers' quantity demanded for good X when the price of good X changes

Ed > 1, meaning consumers are price sensitive

Ed < 1 or the (%ΔQd) < (%ΔP). Consumers are not price sensitive

Ed=1. The percentage change in price is equal to the percentage change in quantity demand

Ed=infinite. In this special case, the demand curve is horizontal meaning consumers have an instantaneous & infinite response to a change in price

Ed=0, In this special case, the demand curve is vertical and there is absolutely no response to a change in price

-in general, the more vertical a good's demand curve, the more inelastic the demand for that good
-the more horizontal a good's demand curve, the more elastic the demand for that good
-despite this generalization, be careful, as elasticities and slopes are not equivalent measures.

-demand for a good will generally be more elastic if :
_the good has more readily available substitutes;
_the sonsumers spends a high proportion of his or her income on that good;
_the consumer has more time to adjust to a price change

the price of a good multiplied by the quantity of that good sold

total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic

at the midpoint of a linear demand curve, Ed =1 . above the midpoint demand is elastic , and below the midpoint demand is inelastic.

a measure of how sensitive the consumption of a good is to a change in consumer's income(Ei)

a good for which the proportional increase in consumption is greater than the proportional increase in income
Ei > 1

a good for which the proportional increase in consumption is less than the proportional increase in income
0 < Ei < 1

-if Ei>1, the good is normal and a luxury
-if 0<Ei<1, the good is normal and a necessity
-if Ei<o, the good is inferior

a measure of how sensitive the consumption of good X is to a change in the price of good Y

-if Ec>0, goods X and Y are substitutes
-if Ec<0, goods X and Y are complementary

measures the sensitivity of producer's quantity supplied for good X when the price of good X changes

-a per-unit tax on a specific good or service.
-if levied(征收) on a firm, this tax shifts the supply curve upward by the amount of the tax.
-this tax also increases the marginal cost(MC), average variable cost(AVC), and average total cost(ATC) curves

-a tax levied on all firms or consumers(消费者)
-if levied on a firm, this tax will increase average fixed cost(AFC) and average total cost(ATC) but not average variable cost(AVC) or marginal cost(MC)

the lost net benefit to society caused by a movement away from the competitive market equilibrium

a situation in which there are missed opportunities; some people could be made better off without making other people wore off

-a government transfer, either to consumers or producers, of the consumption or production of a good
-A government payment to support an individual, business, or group in exchange for certain actions.

a legal minimum price, below which the product cannot be sold

a legal maximum price, above which the product cannot be sold

a price floor in the labor market

the happiness, benefit, satisfaction, or enjoyment gained from consumption of goods and services

total happiness received from consumption of a number of units of a good

-the change in an individual's total utility from the consumption of an additional unit of a good or service
-MU= DIFFERENCE OF TU

a hypothetical unit of measurement often used to quantify utility; also referred to as "Happy Points."

in a given time period, as consumption of an item increases, the marginal(additional) utility from that item falls

given prices and income, a consumer stops consuming a good when the price paid for the next unit is equal to the marginal utility received

the consumer choose amounts of goods X and Y, with his or her limited income, so that the marginal utility per dollar spent is equal for both goods.

an organization that employs factors of production to produce a good or service that it hopes to profitably sell

the difference between total revenue and total explicit(明显的) cost

the difference between total revenue and total production cost, including the implicit(含蓄的) costs

direct, purchased, out-of-pocket cost, paid to resource suppliers out side the firm; also referred to as "accounting costs"

indirect, nonpurchased, or opportunity costs of resources provided by the entrepreneur

a period of time too short to change the size of the plant, but many other more variable resources can adjusted to meet demand
(A period during which at least one of a firm's resources is fixed)

a period or time long enough for the firm to alter all production inputs, including the plant size.

production inputs that cannot be changed in the short run

production inputs the firm can adjust in the short run to meet changes in demand for its output

as successive units of a variable resources are added to a fixed resource, beyond some point the marginal product will decline.

production costs that do not vary with the level of output

production costs that change with the level of output

the sum of total fixed and total variable costs at any level of output

the additional cost of producing one more unit of output
MC= differences of TVC/differences of Q

total fixed cost divided by the level of output

total variable cost divided by the level of output
AVC=TVC/Q

total cost divided by the level of output
ATC=TC/Q

a cost that has already been incurred and is not recoverable

the downward part of the long-run average total cost (LRATC) curve where LRATC falls as plant size increase

the horizontal range of long-run average total cost (LRATC) where LRATC is constant over a variety of plant sizes

the upward of the long-run average total cost(LRATC) curve where LRATC rises as plant size increases

the most competitive market structure is characterized by many small price-taking firms producing a standardized production an industry in which there are no barriers to entry or exit

all firms maximizing profit by producing where marginal return (MR) = marginal cost(MC)

the output where average total cost (ATC) is minimized and economic profit is zero
P=MR=MC=ATC

-the output where average variable cost(AVC) is minimized
-if the price falls below this point, the firm chooses to shut down or produce zero units in short run.
-in the case of shut down, economic losses are equal to the total fixed costs(TFCs)

-there is no more incentive(刺激) for firms to enter or exit

the opportunity of the entrepreneur;s talents; another way of saying the firm is earning zero economic profit

entry (or exit) does not shift the cost curves of firms in the industry

a market structure in which one firm is the sole producer of a good with no close substitutes in a market with entry barriers

-something that prevents other firms from entering an industry
-typical barriers include economies of scale, control over scarce inputs, technological superiority, and barriers created by government.

a temporary monopoly given by the government to an inventor for the use or sale of an invention

the ability to set the price above the perfectly competitive level

the case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand than for multiple firms to share the market

-Pm>MR=MC, output is not allocatively efficient Deadweight loos exists.
-Pm>ACT, so this isn ot productively effcient
-economic profit is greater than zero, so consumersurplus is trandferred to the firm as profit

the sale of same product to different groups of consumers at different price

a market structure in which firms have market power to affect the prices

a market structure characterized by a few small firms producing a differentiated product with easy entry into the market

-Pmc>MR>MC, so there is allocative inefficiency
-Pmc=ATC, so economic profit equals zero

the strategy of creating real or perceived differences in a firm's product in order to increase sales

competition occurs between firms in areas not related to price. these areas can include advertising, new product features, or research

the difference between the long-run output in monopolistic competition and the output at minimum average total cost

a very diverse market structure characterized by a small number of interdependent large firms, producing either a standardized or differentiated product in a market with a barrier to entry

-the relationship among firms when their decision significantly affect one another's profit
-a key characteristic of oligoolies

the sum of the market of the four largest firms in an industry

the fraction of the total industry output accounted for by a given firm's output

models of industries in which firms are competitive rivals seeking to gain at the expense of the their rivals

in game theory, the equilibrium that results when all players choose the action that maximizes their payoffs, given the actions of other players

a game where the two rivals achieve a less desirable outcome because they are unable to coordinate their strategies

a strategy that is always the best strategy to pursue, regardless of what a rival is doing

models where firms agree to work together to mutually improve their situations

a group of firms that agree to maximize their joint profits rather than compete

markets in which firms buy the resources they need to produce the goods and services

the change in the firm's total revenue from the hiring of an additional unit of an input

the change in the firm's total cost from the hiring of an additional unit of an input

the firm hires the profit-maximizing amount of a resource at the point where marginal revenue product(MRP)=margianl resource cost(MRC)

-shows the quantity of labor demanded at all wages
-labor demanded for the firm hiring in a competitive labor market is the MRPL curve

demand for a resource arises from the demand for the goods produced by the resource

-the external factors that influence labor demand
-when these variables change, the entire demand curve shifts to the left or right

a firm that operates in a factor market in which it has absolute market power, that is a wage-setter

goods that are both nonrival and excludabe

the lack of private funding for a public good due to the presence of free-riding individuals who will not contribute to provision of the good

additional benefits to society, not captured by the market demand curve, form the production of a good

-the marginal benefit that accrues to consumers plus the marginal external benefit
-with positive externalities the marginal social benefit curve lies above the market demand curve

- the marginal cost of production plus the marginal external cost
-with negative externalities, the marginal social cost curve lies above the market supply curve

- occurs when a market fails to be efficient
-markets fail when externalities or public goods are present

the existence of spillover benefits for third parties from the production of a good

additional costs to society, not captured by the market supply curve from the production for a good

the existence of spillover costs for third parties from the production of a good

a tax where the proportion of income paid in taxes rises as income rises

a tax where the proportion of income paid in taxes decreases as income rises

a tax where the proportion of income paid in taxes is constant no matter the level of income

this model shows how households and firms circulate resources, goods, and incomes through the economy.The basic model is expanded to include the government and foreign sector