AP Micro Market Failure Cheat Sheet Flashcards
Negative Production Externality
Negative = We want less
Production = costs = supply
Where does the DWL always point to?
A. Towards society
B. Away from society
C. Upwards from society
D. Downwards from society
A. Towards society
Overproduction - N.P.E
If we want less, there must be an overproduction of the good.
Is tax a part of N.P.E?
Yes
What does N.P.E stand for?
Negative Production Externality
What does P.C.E stand for?
Positive Consumption Externality
Private Property
Market System
What are the 6 determinants that shift the Supply Curve?
-R.P
-T
-T & S
-P & G
-P.E
-# of. . .
Change in resource supplies
Change in technology
Change in taxes and subsidies
Change in price of other goods
Change in producer expectations
Change in number of suppliers
Supply Increases. . .Demand. . .
Decreases
Supply Decreases. . .Demand. . .
Increases
What is the law of demand?
The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded.
What are demand curves used for?
Demand curves and demand schedules are tools used to summarize the relationship between quantity demanded and price.
Scarcity Defintion
Scarcity is the problem of having unlimited human needs and wants, in a world of limited resources.
Inflation Defintion
A general and progressive increase in prices.
Circular-Flow Model Definition
A simply economic model which describes the reciprocal circulation of income between producers and consumers.
Positive Statement Definition
A statement about what actually is (was or will be), as opposed to what ought to be. An expression that can be verified by observation.
Normative Statement Definition
Expressed a judgement about whether a situation is DESIRABLE OR UNDESIRABLE
Example: The world would be a better place if the moon were made of green cheese.
Surplus Defintion
An excess of production or supply over demand.
Demand increases. . . the graph shifts…
A. Right
B. Left
Right
Elasticity Definition
The ratio of the percent change in one variable to the percent change in another variable.
Price Ceiling Definition
A government-imposed limit on the price charged for a product. Governments intend price ceilings to protect consumers from conditions that could make necessary commodities unattainable.
Price Floor Definition
A government- or group-imposed limit on how low a price can be charged for a product. For a price floor to be effective, it must be greater than the equilibrium price.
Deadweight Loss Definition:
The net loss in economic welfare that is caused by a tariff or other source of distortion, defined as the total losses to those who lose
What is the Free Rider problem in economics?
Those who consume more than their fair share of a public resource, or shoulder less than a fair share of the cost of its production.
What is consumer surplus?
What is producer surplus?
If people have more income. . .what will change?
A. Demand Increases
B. Demand decreases
C. Supply Increases
D. Supply Decreases
A. Demand Increases
If farmers sell their land because governments aren’t giving subsidies. . .the supply of residential land will?
A. Increase
B. Decreases
A. Increase
Opportunity Cost Defintio:
The loss of the benefits that could have been received from another opportunity.
Example: Losing out on the benefits of working a part-time job while in College.
Definition of Inferior Good
an item that becomes less desirable as the income of consumers increases.
What are some examples of Negative Production Externalities?
Examples:
- Pollution
~Water pollution
~Air pollution
~Noise Pollution
- Ruining views of scenic landscape
Where is the consumer surplus?
Above the Priceline, CREATE THREE POINTS
Where is the producer surplus?
Below the Priceline, CREATE THREE POINTS
Where is the total surplus?
A large triangle composed of the producer surplus and consumer surplus.
Price Elasticity of Supply
The sensitivity of supply of a product to change in its price.
What is laissez-faire capitalism?
The government’s role would be limited to protecting private property from theft and aggression.
French for: “Let it Be”
What is a command system?
The government owns most of the property resources and economic decision-making is set by a central economic plan created and enforced by the government.
Also known as:
-Socialism
-Communism
What are the components of the circular flow diagram?
Households
Resource Market
Businesses
Product Market
- The resource market is the place where:
A. Households sell products and businesses buy products.
B. Businesses sell resources and households sell products.
C. Households sell resources and businesses buy resources.
D. Businesses sell resources and households buy resources (or the service of resources).
C.
- Which of the following would be determined in the product market?
A. A manager’s salary
B. The price of equipment used in a bottling plant.
C. The price of 80 acres of farmland.
D. The price of a new pair of athletic shoes.
D
In this circular flow diagram:
A. Money flows counterclockwise.
B. Resources flow counterclockwise.
C. Goods and services flow clockwise.
D. Households are on the selling side of the product market.
B.
What are the 5 determinants of Demand?
- B.T
- # of B
- Change in P.R.G
- C.E.
A. Change in buyer tastes.
B. Change in number of buyers.
C. Change in income.
D. Change in the prices of related goods.
E. Change in consumer expectations.
