AP Microeconomics/ Macroeconomics Key Terms

The limited nature of society’s resources

The study of how society manages its scarce resources

People Face Trade-offs

The property of society getting the most it can from its scarce resources

The property of distributing economic prosperity uniformly among the members of society

The Cost of Something is What You Give Up to Give It

Whatever must be given up to obtain some item

Rational People Think at the Margin

People who systematically and purposefully do the best they can to achieve their objectives

Small incremental adjustments to a plan of action

People Respond to Incentives

Something that induces a person to act

Trade Can Make Everyone Better Off

Markets Are Usually a Good Way to Organize Economic Activity

An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

Governments Can Sometimes Improve Market Outcomes

The ability of an individual to own and exercise control over scarce resources

A situation in which a market left on its own fails to allocate resources efficiently

The impact of one person’s actions on the well-being of a bystander

The ability if a single economic actor (or small group of actors) to have a substantial influence on market prices

A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services

The quantity of goods and services produced from each unit of labor input

Prices Rise When the Government Prints Too Much Money

An increase in the overall level of prices in the economy

Society Faces a Short-run Trade-off between Inflation and Unemployment

Fluctuations in economic activity, such as employment and production

A visual model of the economy that shows how dollars flow through markets among households and firms

A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

The study of how households and firms make decisions and how they interact in markets

The study of economy-wide phenomena, including inflation, unemployment, and economic growth

Claims that attempt to describe the world as it is

Claims that attempt to prescribe how the world should be

The ability to produce a good using fewer inputs than another producer

The ability to produce a good at a lower opportunity cost than another producer

Goods produced abroad and sold domestically

Goods produced domestically and sold abroad

A group of buyers and sellers of a particular good or service

A market in which there are many buyers and many sellers so that each has a negligible impact on the market price

The amount of a good that buyers are willing and able to purchase

The claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

A table that shows the relationship between the price of a good and the quantity demanded

A graph of the relationship between the price of a good and the quantity demanded

A good for which, other things equal, an increase in income leads to an increase in demand

A good for which, other things equal, an increase in income leads to a decrease in demand

Two goods for which an increase in the price of one leads to an increase in the demand for the other

Two goods for which an increase in the price of one leads to a decrease in demand for the other

The amount of a good that sellers are willing and able to sell

The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

A table that shows the relationship between the price of a good and the quantity supplied

A graph of the relationship between the price of a good and the quantity supplied

A situation in which the market price has reached the level at which the quantity supplied equals the quantity demanded

The price that balances quantity supplied and quantity demanded

The quantity supplied and the quantity demanded at the equilibrium price

A situation in which quantity supplied is greater than quantity demanded

A situation in which quantity demanded is greater than quantity supplied

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

A measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

The amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

A measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded by the percentage change in income

A measure of how much the quantity demanded of one good responds to a change in price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

A measure of how much the quantity supplied of a good responds to a change in price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

A legal maximum on the price at which a good can be sold

A legal minimum on the price at which a good can be sold

The manner in which the burden of a tax is shared among participants in a market

The study of how the allocation of resources affects economic well-being

The maximum amount that a buyer will pay for a good

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

The value of everything a seller must give up to produce a good

The amount a seller is paid for a good minus the seller’s cost of providing it

The property of a resource allocation of maximizing the total surplus received by all members of society

The property of distributing economic prosperity uniformly among the members of society

The fall in total surplus that results from a market distortion, such as a tax

The price of a good that prevails in the world market for that good

A tax on goods produced abroad and sold domestically

The uncompensated impact of one person’s actions on the well-being of a bystander

Altering incentives so that people take account of the external effects of their actions

A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

The costs that parties incur in the process of agreeing to and following through on a bargain

The property of a good whereby a person can be prevented from using it

The property of a good whereby one person’s use diminishes other people’s use

Goods that are both excludable and rival in consumption

Goods that are neither excludable nor rival in consumption

Goods that are rival in consumption but not excludable

A person who receives the benefit of a good but avoids paying for it

A study that compares the costs and benefits to society of providing a public good

A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole

An excess of government spending over government receipts

An excess of government receipts over government spending

Total taxes paid divided by total income

The extra taxes paid on an additional dollar of income

A tax that is the same amount for every person

The idea that people should pay taxes based on the benefits they receive from government services

The idea that taxes should be levied in a person according to how well that person can shoulder the burden

The idea that taxpayers with a greater ability to pay taxes should pay larger amounts

The idea that taxpayers with similar abilities to pay taxes should pay the same amount

A tax for which high-income and low-income taxpayers pay the same fraction of income

A tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers

A tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers

The amount a firm receives for the sale of its output

The market value of the inputs a firm uses in production

Total revenue minus total cost

Input costs that require an outlay of money by the firm

Input costs that do not require an outlay of money by the firm

Total revenue minus total cost, including both explicit and implicit costs

Total revenue minus total explicit cost

The relationship between quantity of inputs used to make a good and the quantity of output of that good

The increase in output that arises from an additional unit of input

The property whereby the marginal product of an input declines as the quantity of the input increases

Costs that do not vary with the quantity of output produced

Costs that vary with the quantity of output produced

Total cost divided by the quantity of output

Fixed cost divided by the quantity of output

Variable cost divided by the quantity of output

The increase in total cost that arises from an extra unit of production

The quantity of output that minimizes average total cost

The property whereby long-run average total cost falls as the quantity of output increases

The property whereby long-run average total cost rises as the quantity of output increases

The property whereby long-run average total cost stays the same as the quantity of output changes

A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

Total revenue divided by the quantity sold

The change in total revenue from an additional unit sold

A cost that has already been committed and cannot be recovered

A firm that is the sole seller of a product without close substitutes

A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

The business practice of selling the same good at different prices to different customers

A market structure in which only a few sellers offer similar or identical products

A market structure in which many firms sell products that are similar but not identical

The study of how people behave in strategic situations

An agreement among firms in a market about quantities to produce or prices to charge

A group of firms acting in unison

A situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen

A particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

A strategy that is best for a player in a game regardless of the strategies chosen by the other players

The inputs used to produce goods and services

The relationship between the quantity of inputs used to make a good and the quantity of output of that good

The increase in the amount of output from an additional unit of labor

The property wherevy the marginal product of an input declines as the quantity of the input increases

The marginal product of an input times the price of the output

The equipment and structures used to produce goods and services

A difference in wages that arises to offset the nonmonetary characteristics of different jobs

The accumulation of investments in people, such as education and on-the-job training

A worker association that bargains with employers over wages, benefits, and working conditions

The organized withdrawal of labor from a firm by a union

Above-equilibrium wages paid by firms to increase worker productivity

The offering of dufferent opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics

The percentage of the population whose family income falls below an absolute level called the poverty line

An absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty

Transfers to the poor given in the form of goods and services rather than cash

The regular pattern of income variation over a person’s life

A person’s normal income

The political philosophy according to which the government should choose policies to maximize the total utility of everyone in society

A measure of happiness or satisfaction

The political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind a “veil of ignorance”

The claim that the government should aim to maximize the well-being of the worst off person in society

Government policy aimed at protecting people against the risk of adverse events

The political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income

Government programs that supplement the incomes of the needy

A tax system that collects revenue from high-income households and gives subsidies to low-income households