AP Micro Econ

question

Elasticity

answer

Measure of how sensitive quantity is to a change in price

question

Inelastic demand

answer

Quantity is insensitive to a change in price.
Means there are not a lot of substitutes and tends to be a necessity. Coefficient is less than 1

question

% change in quantity / % change in price

answer

Elasticity of demand coefficient formula

question

Elastic demand

answer

Quantity is sensitive to a change in price. Has a lot of substitutes and has a coefficient greater than 1.

question

Unit elastic demand

answer

When the coefficient is 1

question

Perfectly inelastic

answer

vertical line and the coefficient is 0

question

perfectly elastic

answer

horizontal line

question

total revenue test

answer

if inelastic then the revenue goes up. Ex. Gas station

If elastic then the revenue goes down. Ex. clothing store

question

consumer surplus

answer

difference between what consumers are willing to pay and what they do pay

question

Producer surplus

answer

Difference between the price and what sellers are willing to sell for

question

total surplus

answer

Producer surplus + consumer surplus

question

Deadwieght loss

answer

Lost efficiency when the optimal quantity is not being produced

question

Price ceiling

answer

when the fixed government price is lower than the equilibrium price

question

Price floor

answer

if the fixed gov price is greater than the equilibrium price

question

Input

answer

workers

question

Output

answer

Products

question

Fixed resources

answer

Doesn't change as you increase output

question

Variable resources

answer

Changes as you increase output

question

short run

answer

When a firm has at least 1 fixed resource

question

long run

answer

When a firm has all variable resources

question

Specialization

answer

as you have more workers, they can specialize in different things

question

law of diminishing marginal returns

answer

As you add more variable resources the additional output will eventually increase

question

Marginal product

answer

How much the output increases when you add a new worker. This initially increases and the increases at a slower rate, then decreases

question

total costs

answer

fixed costs + variable costs

question

Marginal cost

answer

additional cost of one additional output

question

Increased return to scale

answer

when a company experiences a more than double output

question

Constant returns to scale

answer

when a company double output

question

decreasing returns to scale

answer

when a company less than doubles output

question

economies of scale

answer

Long run average costs falls as more output is produced. Bigger companies can produce bigger which allows them to produce cheaper though machines and bulk buying

question

diseconomies of scale

answer

It is possible where eventually the average cost might go up and companies have to hire new people and tech and etc

question

Explicit costs

answer

The money spent in a business not considering the time value

question

Accountant profit

answer

total revenue - explicit costs

question

implicit costs

answer

the opportunity cost of running a business. considers what one could've done instead of business

question

economic profit

answer

total revenue - explicit costs - implicit costs

question

MR = MC

answer

profit maximizing rule

question

normal profit

answer

when there is no economic profit (total revenue = total costs)

question

shut down rule

answer

A firm should shut down if the price falls below the minimum AVC

question

perfect competition

answer

Many small firms, Low barriers to entry and exit, identical products, firms are price takers

question

allocative efficiency

answer

the firm is producing the amount society wants which is where the price = MC

question

productive efficiency

answer

a firm is producing at the lowest cost where ATC is minimized

question

constant cost industry

answer

when other firms enter the market, it didn't increase the price of the resources of the products

question

Imperfect competition

answer

When MR is less than demand

question

Monopoly

answer

Unique with no close subs, price makers, high barriers to entry

question

monopolistic competition

answer

Price makers but other firms can join with few barriers. Different but similar products

question

dominant strategy

answer

When a firm does something regardless what the other competitor does

question

Resource market

answer

Individuals supply and businesses demand

question

Public goods

answer

Non exclusive, shared consumption, no profit

question

Externalities

answer

external cost or benefit to someone other than that person involved in that transaction

question

Regulating monopolies

answer

Regulate price so that ATC hits the demand

1 of 49

question

Elasticity

answer

Measure of how sensitive quantity is to a change in price

question

Inelastic demand

answer

Quantity is insensitive to a change in price.
Means there are not a lot of substitutes and tends to be a necessity. Coefficient is less than 1

question

% change in quantity / % change in price

answer

Elasticity of demand coefficient formula

question

Elastic demand

answer

Quantity is sensitive to a change in price. Has a lot of substitutes and has a coefficient greater than 1.

question

Unit elastic demand

answer

When the coefficient is 1

question

Perfectly inelastic

answer

vertical line and the coefficient is 0

question

perfectly elastic

answer

horizontal line

question

total revenue test

answer

if inelastic then the revenue goes up. Ex. Gas station

If elastic then the revenue goes down. Ex. clothing store

question

consumer surplus

answer

difference between what consumers are willing to pay and what they do pay

question

Producer surplus

answer

Difference between the price and what sellers are willing to sell for

question

total surplus

answer

Producer surplus + consumer surplus

question

Deadwieght loss

answer

Lost efficiency when the optimal quantity is not being produced

question

Price ceiling

answer

when the fixed government price is lower than the equilibrium price

question

Price floor

answer

if the fixed gov price is greater than the equilibrium price

question

Input

answer

workers

question

Output

answer

Products

question

Fixed resources

answer

Doesn't change as you increase output

question

Variable resources

answer

Changes as you increase output

question

short run

answer

When a firm has at least 1 fixed resource

question

long run

answer

When a firm has all variable resources

question

Specialization

answer

as you have more workers, they can specialize in different things

question

law of diminishing marginal returns

answer

As you add more variable resources the additional output will eventually increase

question

Marginal product

answer

How much the output increases when you add a new worker. This initially increases and the increases at a slower rate, then decreases

question

total costs

answer

fixed costs + variable costs

question

Marginal cost

answer

additional cost of one additional output

question

Increased return to scale

answer

when a company experiences a more than double output

question

Constant returns to scale

answer

when a company double output

question

decreasing returns to scale

answer

when a company less than doubles output

question

economies of scale

answer

Long run average costs falls as more output is produced. Bigger companies can produce bigger which allows them to produce cheaper though machines and bulk buying

question

diseconomies of scale

answer

It is possible where eventually the average cost might go up and companies have to hire new people and tech and etc

question

Explicit costs

answer

The money spent in a business not considering the time value

question

Accountant profit

answer

total revenue - explicit costs

question

implicit costs

answer

the opportunity cost of running a business. considers what one could've done instead of business

question

economic profit

answer

total revenue - explicit costs - implicit costs

question

MR = MC

answer

profit maximizing rule

question

normal profit

answer

when there is no economic profit (total revenue = total costs)

question

shut down rule

answer

A firm should shut down if the price falls below the minimum AVC

question

perfect competition

answer

Many small firms, Low barriers to entry and exit, identical products, firms are price takers

question

allocative efficiency

answer

the firm is producing the amount society wants which is where the price = MC

question

productive efficiency

answer

a firm is producing at the lowest cost where ATC is minimized

question

constant cost industry

answer

when other firms enter the market, it didn't increase the price of the resources of the products

question

Imperfect competition

answer

When MR is less than demand

question

Monopoly

answer

Unique with no close subs, price makers, high barriers to entry

question

monopolistic competition

answer

Price makers but other firms can join with few barriers. Different but similar products

question

dominant strategy

answer

When a firm does something regardless what the other competitor does

question

Resource market

answer

Individuals supply and businesses demand

question

Public goods

answer

Non exclusive, shared consumption, no profit

question

Externalities

answer

external cost or benefit to someone other than that person involved in that transaction

question

Regulating monopolies

answer

Regulate price so that ATC hits the demand

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