AP Microeconomics Key Terms (Crash Course)

The ability to produce more of a good or service than another person or society with the same number of inputs. Alternativley, it means one person or society can make more of a good or service with less inputs than its counterpart.

Otherwise known as the Socially Optimal Point, it is the amount of production that benefits society the most. It is achieved when the marginal benefit of production is equal to the marginal cost.

The tools, machines, factories, and buildings used to produce goods and services.

The "Capital Building"

"Other things being equal." The assumption that all other variables remain constant except those being studies.

A model that shows how households and firms interact in product and resource markets.

An economic system in which the government makes most of the choices for the economy.

The ability to produce a good or service at a lower oppertunity cost than someone else. The reason why specialization and trade can benefit two societies.

The resources used to produce goods and services. These include land, labor and capital.

People's mental and or physical effort and skill used in producing goods and services.

Natural resources used in producing goods and services. Synonymous with raw materials.

As the production of one good increases, producers must decrease production of the other goods because factors of production are not perfectly interchangable between the production of both goods.

The additional benefit of consuming one extra unit of a good or service. The rate of change or slope of total benefit.

The additional cost of producing one extra good or service. The rate of change or slope of total cost.

Contrasted with Command Economy. Production decisions are made centrally with buyers "vote" or dollars.

That which is given up when a choice is made about the use of a scarce resource. Oppertunity cost includes implicit(nonmonetary) and explicit (monetary) costs.

Model used to show all possible combinations of two goods that could be produced using scarce factors of production.

When the least amount of waste happens in producing as much output as possible.

The condition that exists because people's wants and needs are greater than the available resources to meet those wants and needs.

Focus production on a particular good or service. To achieve maximum benefits the society or person should specialize according to their comparative advantage.

The rate at which people trade two goods. The ratio for which a unit of one good can be purchased for the units of another good.

An alternative use for scarce factors of production. Trade-offs are a result of scarcity.

Ex: When you only have enough money to buy a bike or a snow board.

Goods that are consumed together.

Ex: Peanut Butter and Jelly

The difference between the equilibrium price in the market and the price consumers are actually willing to pay for a good or service.

On a graph: Beneath the demand curve, above the price paid and to the left of the qunatitiy purchased.

Determines whether goods are complements (if the C-PE is negative) or subsitutes ( if the C-PE is positive)

The loss of consumer or producer surplus when a quantity other than the equilibrium quantity prevails in the market. Deadwieght loss occurs from either over or under production of a good and is associated with allocative effeciency.

The factors that either cause demand to increase or decrease. These factors include, Tastes of consumers, Related goods price, Income of consumers (change), Buyers (change in number of buyers) and Expected prices.
TRIBE

The factors that cause supply to either increase or decrease. These factors include, Resource cost or problem, Other related goods price, Technology, Taxes and subsidies, Expected price, Number of sellers.
ROTTEN

Each additional unit of a good consumed produces less satisfaction (utility) than the previous unit consumed. One reason why price and quantity demanded have an inverse relationship.

A maximum price set below the equilibrium price. This causes the quantity demanded to exceed the quantity supplied creating a shortage.

A minimum price set above the equilibrium price. This causes the quantity supplied to become greater than the quantity demanded creating a surplus.

The sensitivity to quantity changes relative to changes in other factors, often prices.

Describes the rate of change in quantity that is greater than the rate of change in price.

A per unit tax on the production of a good or service. Excise taxes tend to reduce supply, decreasing quantity of a good that is sold and increasing the price that buyers pay.

Consumers' buying power changes inversely to changes in price. Consumers buy fewer units at higher prices because their same nominal income has less purchasing power.

Determines whether good are normal (if IED is positive) or inferior (if IED is negative).

Describes a rate of change in quantity that is less than the rate of change in price.

A good whos demand varies inversely with consumers incomes. It is not necessarly needed. If Income Elasticity of Demand is a negative numver than the good is inferior.

The price and quantity demanded are inversely related because of the Income effect, subsitution effect and diminishing marginal benefits.

The cost of producing one additional unit of a good or service incurs a greater cost than the previous unit.

A good whose demand varies directly with consumers income. If the Income Elasticity of Demand is positive than the good is normal.

The responsiveness of quantity changes relative to price changes.

The responsiveness of a quantity supplied of a good or service relative to changes in price.

When the quantity demanded is greater than the quantity supplied.

Tendency for consumers to subsitute lower priced items in place for higher priced items.

The price of a good or service multiplied by the quantity sold.

Determines price elasticity of demand.
x>1 = Elastic
x<1 = Inelastic
x=1 = Unit Elastic

Percentage change in quantity that is equal to percentage change in price. b b