{
 "source": "https://peabody.kids/flashcards/tp-ap-microeconomics",
 "id": "tp-ap-microeconomics",
 "title": "AP Microeconomics Key Terms",
 "category": "test-prep",
 "subject": "AP Microeconomics",
 "levels": [
  "9-12",
  "college"
 ],
 "description": "Supply and demand, costs, market structures, factor markets and market failure.",
 "tags": [
  "ap",
  "economics",
  "micro"
 ],
 "frontLabel": "Term",
 "backLabel": "Meaning",
 "cards": [
  [
   "Law of demand",
   "As price rises, quantity demanded falls"
  ],
  [
   "Law of supply",
   "As price rises, quantity supplied rises"
  ],
  [
   "Equilibrium price",
   "Price where quantity demanded equals quantity supplied"
  ],
  [
   "Shortage",
   "Quantity demanded exceeds quantity supplied"
  ],
  [
   "Surplus",
   "Quantity supplied exceeds quantity demanded"
  ],
  [
   "Substitute goods",
   "Goods used in place of each other; price of one up raises demand for the other"
  ],
  [
   "Complementary goods",
   "Goods used together; price of one up lowers demand for the other"
  ],
  [
   "Normal good",
   "Demand rises as income rises"
  ],
  [
   "Inferior good",
   "Demand falls as income rises"
  ],
  [
   "Price elasticity of demand",
   "How sensitive quantity demanded is to a price change"
  ],
  [
   "Elastic demand",
   "Elasticity greater than 1"
  ],
  [
   "Inelastic demand",
   "Elasticity less than 1"
  ],
  [
   "Total revenue test",
   "If price and total revenue move opposite ways, demand is elastic"
  ],
  [
   "Cross-price elasticity",
   "Response of demand for one good to another good's price"
  ],
  [
   "Income elasticity",
   "Response of demand to a change in income"
  ],
  [
   "Consumer surplus",
   "Difference between what buyers would pay and what they do pay"
  ],
  [
   "Producer surplus",
   "Difference between price received and the minimum a seller would accept"
  ],
  [
   "Deadweight loss",
   "Lost total surplus from inefficiency"
  ],
  [
   "Price ceiling",
   "Legal maximum price"
  ],
  [
   "Price floor",
   "Legal minimum price"
  ],
  [
   "Tax incidence",
   "Who actually bears a tax"
  ],
  [
   "Marginal utility",
   "Added satisfaction from one more unit"
  ],
  [
   "Diminishing marginal utility",
   "Each extra unit gives less added satisfaction"
  ],
  [
   "Utility-maximizing rule",
   "MU per dollar equal across goods"
  ],
  [
   "Budget constraint",
   "The combinations of goods affordable with income"
  ],
  [
   "Explicit cost",
   "Out-of-pocket payment"
  ],
  [
   "Implicit cost",
   "Opportunity cost of using one's own resources"
  ],
  [
   "Accounting profit",
   "Revenue minus explicit costs"
  ],
  [
   "Economic profit",
   "Revenue minus explicit and implicit costs"
  ],
  [
   "Marginal product",
   "Extra output from one more unit of input"
  ],
  [
   "Law of diminishing returns",
   "Adding more of a variable input eventually adds less output"
  ],
  [
   "Fixed cost",
   "Cost that does not change with output"
  ],
  [
   "Variable cost",
   "Cost that changes with output"
  ],
  [
   "Marginal cost",
   "Cost of producing one more unit"
  ],
  [
   "Average total cost",
   "Total cost divided by quantity"
  ],
  [
   "MC crosses ATC",
   "Marginal cost meets average total cost at ATC's minimum"
  ],
  [
   "Economies of scale",
   "Falling long-run average cost as output grows"
  ],
  [
   "Diseconomies of scale",
   "Rising long-run average cost as output grows"
  ],
  [
   "Profit-maximizing rule",
   "Produce where marginal revenue equals marginal cost"
  ],
  [
   "Perfect competition",
   "Many sellers, identical products, price takers, free entry"
  ],
  [
   "Price taker",
   "A firm that cannot affect market price"
  ],
  [
   "Shutdown rule",
   "Shut down if price falls below average variable cost"
  ],
  [
   "Long-run competitive equilibrium",
   "Price equals minimum ATC; zero economic profit"
  ],
  [
   "Monopoly",
   "A single seller with barriers to entry"
  ],
  [
   "Barriers to entry",
   "Obstacles that prevent new firms from joining a market"
  ],
  [
   "Natural monopoly",
   "One firm can supply the market at lower cost than several"
  ],
  [
   "Price discrimination",
   "Charging different customers different prices for the same good"
  ],
  [
   "Monopolistic competition",
   "Many sellers with differentiated products and free entry"
  ],
  [
   "Oligopoly",
   "A few large interdependent firms"
  ],
  [
   "Collusion",
   "Firms cooperating to restrict competition"
  ],
  [
   "Cartel",
   "A group of firms that agree to limit output and set prices"
  ],
  [
   "Game theory",
   "Study of strategic decision-making"
  ],
  [
   "Dominant strategy",
   "Best choice regardless of what others do"
  ],
  [
   "Nash equilibrium",
   "No player can gain by changing their own strategy alone"
  ],
  [
   "Prisoner's dilemma",
   "A game where individual incentives lead to a worse shared outcome"
  ],
  [
   "Kinked demand curve",
   "Oligopoly model with sticky prices"
  ],
  [
   "Herfindahl-Hirschman Index",
   "Measure of market concentration"
  ],
  [
   "Derived demand",
   "Demand for a resource that comes from demand for the product"
  ],
  [
   "Marginal revenue product",
   "Extra revenue from one more unit of a resource"
  ],
  [
   "Hiring rule",
   "Hire until marginal revenue product equals the resource price"
  ],
  [
   "Monopsony",
   "A market with a single buyer"
  ],
  [
   "Minimum wage",
   "A legal price floor for labor"
  ],
  [
   "Wage determination",
   "Set by labor supply and demand"
  ],
  [
   "Externality",
   "A cost or benefit borne by a third party"
  ],
  [
   "Negative externality",
   "Pollution-type cost imposed on others"
  ],
  [
   "Positive externality",
   "Benefit to others, like vaccination"
  ],
  [
   "Pigouvian tax",
   "A tax set to equal an external cost"
  ],
  [
   "Subsidy",
   "Government payment to encourage a good"
  ],
  [
   "Public good",
   "Non-excludable and non-rival"
  ],
  [
   "Free-rider problem",
   "Benefiting without paying"
  ],
  [
   "Common resource",
   "Rival but non-excludable good, prone to overuse"
  ],
  [
   "Tragedy of the commons",
   "Overuse of shared resources"
  ],
  [
   "Coase theorem",
   "Parties can solve externalities by bargaining if costs are low and property rights are clear"
  ],
  [
   "Allocative efficiency",
   "Producing what society values most, P = MC"
  ],
  [
   "Productive efficiency",
   "Producing at minimum average total cost"
  ],
  [
   "Marginal social benefit",
   "Total benefit to society of one more unit"
  ],
  [
   "Asymmetric information",
   "One party knows more than the other"
  ],
  [
   "Adverse selection",
   "Hidden characteristics lead to poor market outcomes"
  ],
  [
   "Moral hazard",
   "Risky behavior because someone else bears the cost"
  ],
  [
   "Gini coefficient",
   "Measure of income inequality from 0 to 1"
  ],
  [
   "Lorenz curve",
   "Graph of cumulative share of income by population share"
  ],
  [
   "Antitrust law",
   "Rules promoting competition and limiting monopoly power"
  ],
  [
   "Circular flow model",
   "Shows flows between households and firms through markets"
  ],
  [
   "Capital",
   "Goods used to produce other goods"
  ],
  [
   "Short run",
   "Period in which at least one input is fixed"
  ],
  [
   "Long run",
   "Period in which all inputs are variable"
  ],
  [
   "Total surplus",
   "Consumer surplus plus producer surplus"
  ],
  [
   "Elasticity of supply",
   "Responsiveness of quantity supplied to price"
  ],
  [
   "Rent seeking",
   "Spending resources to gain favorable treatment"
  ]
 ]
}