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AP Micro > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

competitive market

A

A competitive market is a market in which
there are many buyers and sellers of the
same good or service, none of whom can
influence the price at which the good or
service is sold.

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2
Q

demand schedule

A

A demand schedule shows how much of a
good or service consumers will be willing and
able to buy at different prices.

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3
Q

law of demand

A

The law of demand says that a higher price
for a good or service, all other things being
equal, leads people to demand a smaller
quantity of that good or service.

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4
Q

inferior good

A

When a rise in income decreases the demand
for a good, it is an inferior good.

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5
Q

change in demand

A

A change in demand is a shift of the
demand curve, which changes the quantity
demanded at any given price.

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6
Q

substitutes

A

Two goods are substitutes if a rise in the
price of one of the goods leads to an increase
in the demand for the other good.

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7
Q

individual demand curve

A

An individual demand curve illustrates
the relationship between quantity demanded
and price for an individual consumer.

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8
Q

supply and demand model

A

The supply and demand model is a model
of how a competitive market works.

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9
Q

normal good

A

When a rise in income increases the demand
for a good—the normal case—it is a
normal good.

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9
Q

movement along a demand curve

A

A movement along the demand curve
is a change in the quantity demanded of a
good that is the result of a change in that
good price.

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10
Q

compliments

A

Two goods are complements if a rise in the
price of one of the goods leads to a decrease
in the demand for other goods.

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11
Q

quantity demanded

A

The quantity demanded is the actual
amount of a good or service consumers are
willing and able to buy at some specific price.

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12
Q

demand curve

A

A demand curve is a graphical
representation of the demand schedule. It
shows the relationship between quantity
demanded and price.

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13
Q

The quantity supplied

A

is the actual amount
of a good or service producers are willing to
sell at some specific price.

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14
Q

A supply schedule shows

A

how much of a
good or service producers will supply at
different prices.

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15
Q

A supply curve

A

shows the relationship
between quantity supplied and price.

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16
Q

The law of supply

A

says that, other things
being equal, the price and quantity supplied
of a good are positively related.

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16
Q

A movement along the supply curve

A

is a change in the quantity supplied of a good that is the result of a change in that good’s price.

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17
Q

Determinants of supply

A

is a shift of the supply
curve, which changes the quantity supplied at any given price:

Prices/avaliability of resources
other /alternates goods
technology
taxes and subsidies
expectation of future profit
number of sellers

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18
Q

An input

A

is anything that is used to produce
a good or service.

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19
Q

An individual supply curve

A

illustrates the relationship between quantity supplied and price for an individual producer.

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20
Q

An economic situation is in equilibrium
when…

A

no individual would be better off doing
something different.

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21
Q

A competitive market is in equilibrium
when…

A

price has moved to a level at which
the quantity demanded of a good equals
the quantity supplied of that good. The
price at which this takes place is the
equilibrium price, also referred to as the
market-clearing price. The quantity of
the good bought and sold at that price is the
equilibrium quantity.

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22
Q

There is a surplus of a good when…

A

the
quantity supplied exceeds the quantity
demanded. Surpluses occur when the price is
above its equilibrium level.

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23
Q

There is a shortage of a good when…

A

the
quantity demanded exceeds the quantity
supplied. Shortages occur when the price is
below its equilibrium level.

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24
Q

Price controls

A

are legal restrictions on
how high or low a market price may go. They
can take two forms:

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25
Q

a price ceiling,

A

a maximum price sellers are allowed to charge
for a good or service,

26
Q

price floor

A

a minimum price buyers are required to pay for
a good or service.

27
Q

what are inefficient allocations to consumers caused by?

A

Price ceilings often lead to inefficiency in the
form of inefficient allocation to
consumers: people who want the good
badly and are willing to pay a high price don’t
get it, and those who care relatively little
about the good and are only willing to pay a
relatively low price do get it.

28
Q

inefficiency low quality

A

Price ceilings often lead to inefficiency in that
the goods being offered are of inefficiently
low quality: sellers offer low-quality goods
at a low price even though buyers would
prefer a higher quality at a higher price.

29
Q

wasted resources

A

Price ceilings typically lead to inefficiency in
the form of wasted resources: people
expend money, effort, and time to cope with
the shortages caused by the price ceiling.

30
Q

A black market

A

is a market in which goods
or services are bought and sold illegally—
either because it is illegal to sell them at all or
because the prices charged are legally
prohibited by a price ceiling.

31
Q

The minimum wage

A

is a legal floor on the
wage rate, which is the market price of labor.

32
Q

what is inefficient allocation
of sales among sellers caused by?

A

Price floors lead to inefficient allocation
of sales among sellers: those who would
be willing to sell the good at the lowest price
are not always those who manage to sell it.

33
Q

quantity control / quota

A

A quantity control, or quota, is an upper
limit on the quantity of some good that can be
bought or sold.

34
Q

inefficiency high quality

A

Price floors often lead to inefficiency in
that goods of inefficiently high quality
are offered: sellers offer high-quality goods
at a high price, even though buyers would
prefer a lower quality at a lower price.

34
Q

demand price

A

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

35
Q

license

A

A license gives its owner the right to supply
a good or service.

36
Q

supply price

A

The supply price of a given quantity is
the price at which producers will supply
that quantity.

37
Q

wedge

A

A quantity control, or quota, drives a
wedge between the demand price and
the supply price of a good; that is, the
price paid by buyers ends up being
higher than that received by sellers.

38
Q

quota rent

A

The
difference between the demand and supply
price at the quota amount is the quota
rent, the earnings that accrue to the
license-holder from ownership of the right
to sell the good. It is equal to the market
price of the license when the licenses
are traded.

39
Q

DWL

A

Deadweight loss is the lost gains
associated with transactions that do not occur
due to market intervention.

40
Q

substitution effect

A

The substitution effect of a change in the
price of a good is the change in the quantity
of that good demanded as the consumer
substitutes the good that has become
relatively cheaper for the good that has
become relatively more expensive.

41
Q

income effect

A

The income effect of a change in the
price of a good is the change in the quantity
of that good demanded that results from a
change in the consumer’s purchasing power
when the price of the good changes.

42
Q

price elasticity of demand

A

The price elasticity of demand is the ratio
of the percent change in the quantity
demanded to the percent change in the price
as we move along the demand curve
(dropping the minus sign).

43
Q

midpoint method

A

The midpoint method is a technique for
calculating the percent change. In this
approach, we calculate changes in a variable
compared with the average, or midpoint, of
the initial and final values.

44
Q

Demand is perfectly inelastic

A

when the
quantity demanded does not respond at all to
changes in the price. When demand is
perfectly inelastic, the demand curve is a
vertical line.

45
Q

Demand is perfectly elastic

A

when any price increase will cause the quantity demanded to drop to zero. When demand is perfectly elastic, the demand curve is a horizontal line.

46
Q

When is demand elastic or inelastic?

A

Demand is elastic if the price elasticity of
demand is greater than 1, inelastic if the
price elasticity of demand is less than 1, and
unit-elastic if the price elasticity of demand
is exactly 1.

47
Q

total revenue

A

Total revenue is the total value of sales of a
good or service. It is equal to the price
multiplied by the quantity sold.

48
Q

The cross-price elasticity of demand

A

between two goods measures the effect of
the change in one good’s price on the
quantity demanded of the other good. It is
equal to the percent change in the quantity
demanded of one good divided by the percent
change in the other good’s price

49
Q

The income elasticity of demand

A

is the percent change in the quantity of a good
demanded when a consumer’s income
changes divided by the percent change in the
consumer’s income.

50
Q

The demand for a good is income-elastic

A

if the income elasticity of demand for that good
is greater than 1.

51
Q

The demand for a good is income-inelastic

A

if the income elasticity of demand for that
good is positive but less than 1.

52
Q

The price elasticity of supply

A

is a measure of the responsiveness of the
quantity of a good supplied to the price of
that good. It is the ratio of the percent
change in the quantity supplied to the
percent change in the price as we move
along the supply curve.

53
Q

There is a perfectly elastic supply if

A

the quantity supplied is zero below some
price and infinite above that price. A
perfectly elastic supply curve is a
horizontal line.

53
Q

There is a perfectly inelastic supply

A

when the price elasticity of supply is zero, so that changes in the price of the good have no
effect on the quantity supplied. A perfectly
inelastic supply curve is a vertical line.

54
Q

A consumer’s willingness to pay

A

for a good is the maximum price at which he or
she would buy that good.

55
Q

Individual consumer surplus

A

is the net gain to an individual buyer from the
purchase of a good. It is equal to the
difference between the buyer’s
willingness to pay and the price paid.

56
Q

A seller’s cost

A

is the lowest price at which he
or she is willing to sell a good.

57
Q

The term consumer surplus

A

is often used to refer to both individual and to
total consumer surplus.

57
Q

Total consumer surplus

A

is the sum of the individual consumer surpluses of all the buyers of a good in a market.

58
Q

Individual producer surplus

A

is the net gain to an individual seller from selling a good. It is equal to the difference between the
price received and the seller’s cost.

59
Q

Total producer surplus

A

in a market is the sum of the individual producer surpluses of all the sellers of a good in a market.

60
Q

Economists use the term producer surplus
to refer…

A

both to individual and to total
producer surplus.

AP Micro (3 decks)

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