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ap micro > unit 2 > Flashcards

unit 2 Flashcards

1
Q

what is a competitive market

A

there are many buyers and sellers of the same good/service but none can influence the price at which it is sold

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2
Q

supply/demand model

A

model of how a competitive market works

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3
Q

what is the law of demand

A

the higher the price for a good/service, the smaller the quantity demanded is for that good

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4
Q

what is a change in demand

A

shift of the demand curve, which changes the quantity demanded at any given price

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5
Q

what is the difference between quantity demanded and demand

A

demand refers to the entire curve (non price factor will change this), quantity demanded is a specific point on the curve (quantity associated w specific price)

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6
Q

what are 5 factors that will shift the demand curve

A
  1. change in taste
  2. change in price of related goods/services
  3. change in income
  4. change in number of consumers
  5. change in expectations
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7
Q

what are substitutes

A

when the rise in price of one good results to an increase of demand for another good

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8
Q

what are complements

A

rise in price of one good leads to the decrease in the demand for another good

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9
Q

what is a normal good

A

when a rise in income increases the demand for a good

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10
Q

what is an inferior good

A

rise in income means a decrease in demand

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11
Q

what is the law of supply

A

the price and quantity supplied of a good are positively related

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12
Q

what is quantity supplied

A

actual amount of a good or service people are willing to sell at a certain point

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13
Q

what are the 5 factors that will shift the supply curve

A
  1. input prices
  2. price of related goods/services
  3. producer expectations
  4. number of producers
  5. technology
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14
Q

what is an input

A

good or service that is used to produce another good or service

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15
Q

what is a surplus

A

when the quantity supplied is greater then the quantity demanded (when the price is above equilibrium)

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16
Q

what is a shortage

A

when the quantity demanded is greater then the quantity supplied (price is below equilibrium)

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17
Q

what are price controls

A

legal restrictions on how high or low a market price may go

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18
Q

price ceiling

A

max price sellers are allowed to charge for

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19
Q

price floor

A

minimum rice buyers are required to pay for a good or service

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20
Q

binding price ceiling

A

will cause a shortage
inefficiency in the form of wasted resources and low quality

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21
Q

binding price floor

A

will cause a surplus
inefficiency in the form of allocation of sales among sellers and low quantity

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22
Q

what is a black market

A

which goods or services are bought and sold illegally

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23
Q

what is a quota

A

an upper limit on the quantity of some good that can be bought or sold

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24
Q

what is a license

A

gives its owner the right to supply a good or service

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25
Q

what is a wedge

A

the price paid by buyers is higher then what is received by sellers

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26
Q

what is the quota rent

A

difference between demand and supply price at quota amount (earnings that is given to the license holder from ownership of the right to sell the good)

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27
Q

what is deadweight loss

A

the value of forgone mutually beneficial transactions

28
Q

what is the substitution effect

A

the change in price of a good is the change in quantity demanded of another good (consumer substitutes the good that has become relatively cheaper for the good that is relatively more expensive)

29
Q

what is the income effect

A

change in price of a good is the change in quantity demanded that results from a change in the consumers purchasing power when the price of a good changes

30
Q

what is price elasticity of demand

A

the ratio of % change in quantity demanded to % change in price

31
Q

what is the midpoint method

A

(change in quantity/average)/(change in price/average)

32
Q

when is demand perfectly inelastic

A

quantity demanded doesn’t respond to any change in price

33
Q

when is demand perfectly elastic

A

any price increase will cause the quantity demanded to drop to zero

34
Q

what happens if price elasticity of demand is greater then 1

A

demand is elastic

35
Q

what happens if price elasticity of demand is less then 1

A

demand is inelastic

36
Q

what happens if price elasticity of demand is exactly 1

A

unit-elastic

37
Q

what is total revenue

A

the total value of sales of a good or service – price x quantity sold

38
Q

what is a price effect

A

after a price increases, each unit sold sells at a higher price which tends to raise revenuew

39
Q

what is a quantity effect

A

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

40
Q

effect of elasticity on total revenue: unit elastic

A

fall in price has no effect on total revenue

41
Q

effect of elasticity on total revenue: inelastic

A

price effect dominates quantity effect – fall in price reduces total revenue

42
Q

effect of elasticity on total revenue: elastic

A

quantity effect dominates price effect – fall in price increases the total revenue

43
Q

what factors affect price elasticity of demand

A
  1. availability of close substitutes
  2. proportion of income
  3. luxury vs necessity
  4. addictive or habit
  5. time
44
Q

what is the cross price elasticity of demand

A

measures the effect of the change in one goods price on the quantity demanded of another good

45
Q

how to calculate cross price elasticity of demand

A

%change in quantity of good A demanded / % change in price of good B

46
Q

if two goods are substitutes, CPED is:

A

positive (a rise in price of one increases demand for other)

47
Q

if two goods are complements, CPED is:

A

negative (rise in price of one good decreases demand for other)

48
Q

what is the income elasticity of demand

A

% change in quantity of good demanded / % change in income

49
Q

if income elasticity is greater then 1, it is

A

income elastic

50
Q

if income elasticity is less then 1, it is

A

income inelastic

51
Q

what is the price elasticity of supply

A

% change in quantity supplied / % change in price

52
Q

if PES is zero

A

perfectly inelastic supply (change in price has no effect on quantity supplied)

53
Q

what factors affect PES

A
  1. availability of inputs
  2. time
54
Q

total consumer surplus

A

sum of all individual consumer surpluses

55
Q

what is a sellers cost

A

the lowest price someone is willing to sell the good

56
Q

what is total surplus

A

total net gain to consumers and producers from trading in a market (sum of CS and PS)

57
Q

regressive tax

A

rises less than in proportion to income
(high income taxpayers pay a smaller amount of their income then low income taxpayers)

58
Q

proportional tax

A

all taxpayers pay the same percentage of their income

59
Q

progressive tax

A

high income taxpayers pay larger percentage of their income compared to low income taxpayers

60
Q

excise tax

A

tax on sales of a good or service

61
Q

tax incidence

A

distribution of tax burden

62
Q

lump sum tax

A

tax of a fixed amount payed by all taxpayers (eg: poll tax)

63
Q

administrative costs

A

are the resources used by the government to collect the tax

64
Q

protectionism

A

practice of limiting trade to protect domestic industries

65
Q

tarrifs

A

taxes on imports

66
Q

import quota

A

limit on the quantity of a good that can be imported within a given period

ap micro (2 decks)

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