AP Microeconomics Unit 3 Vocabulary Review

question

cross price elasticity

answer

measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus.

question

law of diminishing marginal utility

answer

as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

question

excise tax

answer

paid when purchases are made on a specific good,

question

price elasticity of demand

answer

a measure of the relationship of the percentage change of quantity demanded compared to the percentage change of price.

question

normal good

answer

a good that consumers demand more of when their incomes increase

question

inferior good

answer

a good that consumers demand less of when their income increases

question

price elasticity of supply

answer

a measure of the relationship of the percentage change of quantity supply compared to the percentage change of price.

question

substitution effect

answer

a change in the amount that consumers will buy because they buy substitute goods instead

question

income effect

answer

the change in consumption resulting from a change in real income

question

perfectly inelastic

answer

PED=0: there is no change in quantity demanded when price is changed

question

perfectly elastic

answer

any change in price will cause a complete change in demand

question

progressive tax

answer

A tax for which the percentage of income paid in taxes increases as income increases

question

regressive tax

answer

A tax for which the percentage of income paid in taxes decreases as income increases

question

proportional tax

answer

a tax for which high-income and low-income taxpayers pay the same fraction of income

question

marginal utiity

answer

the benefit gained from consuming one additional unit of a good or service.

question

consumer surplus

answer

the difference between the willingness to pay and the price paid for the good

question

producer surplus

answer

the amount a seller is paid for a good minus the seller's cost of providing it

question

optimal consumption

answer

The mix of consumer purchases that maximizes the utility attainable from available income

question

budget line

answer

all combinations of goods for which the total amount of money spent is equal to income

question

quantity effect

answer

After a price increase, fewer units are sold, which tends to lower revenue.

question

price effect

answer

After a price increase, each unit sold sells at a higher price, which tends to raise revenue

question

total revenue

answer

TR = PQ

1 of 22

question

cross price elasticity

answer

measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus.

question

law of diminishing marginal utility

answer

question

excise tax

answer

paid when purchases are made on a specific good,

question

price elasticity of demand

answer

a measure of the relationship of the percentage change of quantity demanded compared to the percentage change of price.

question

normal good

answer

a good that consumers demand more of when their incomes increase

question

inferior good

answer

a good that consumers demand less of when their income increases

question

price elasticity of supply

answer

a measure of the relationship of the percentage change of quantity supply compared to the percentage change of price.

question

substitution effect

answer

a change in the amount that consumers will buy because they buy substitute goods instead

question

income effect

answer

the change in consumption resulting from a change in real income

question

perfectly inelastic

answer

PED=0: there is no change in quantity demanded when price is changed

question

perfectly elastic

answer

any change in price will cause a complete change in demand

question

progressive tax

answer

A tax for which the percentage of income paid in taxes increases as income increases

question

regressive tax

answer

A tax for which the percentage of income paid in taxes decreases as income increases

question

proportional tax

answer

a tax for which high-income and low-income taxpayers pay the same fraction of income

question

marginal utiity

answer

the benefit gained from consuming one additional unit of a good or service.

question

consumer surplus

answer

the difference between the willingness to pay and the price paid for the good

question

producer surplus

answer

the amount a seller is paid for a good minus the seller's cost of providing it

question

optimal consumption

answer

The mix of consumer purchases that maximizes the utility attainable from available income

question

budget line

answer

all combinations of goods for which the total amount of money spent is equal to income

question

quantity effect

answer

After a price increase, fewer units are sold, which tends to lower revenue.

question

price effect

answer

After a price increase, each unit sold sells at a higher price, which tends to raise revenue

question

total revenue

answer

TR = PQ

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