Flashcards for:
AP Microeconomics Comprehensive Review Notes

More resources, better technology, and trade.

Many firms, identical products, low barriers to entry, and firms are price takers with no control over the market price.

The equilibrium price will increase, but the change in equilibrium quantity is indeterminate and depends on the relative magnitudes of the shifts in demand and supply.

MRP is the additional revenue generated from employing one more unit of labor. Firms will hire workers up to the point where the MRP equals the marginal resource cost (MRC).

Comparative advantage is when a country can produce a good at a lower opportunity cost than another country. Absolute advantage is when a country can produce more of a good with the same amount of resources.

As more of a variable input (like labor) is added to a fixed input (like capital), the additional output from each new unit of the variable input will eventually decrease.

Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay.

A price floor set above the equilibrium price creates a surplus as the quantity supplied exceeds the quantity demanded.

The Lorenz Curve illustrates income inequality within an economy. The area between the line of equality and the Lorenz Curve indicates the degree of income inequality.

Monopolies determine the profit-maximizing level of output where marginal revenue (MR) equals marginal cost (MC). The corresponding price is found on the demand curve at that output level.

If total revenue moves in the opposite direction of price, demand is elastic. If total revenue moves in the same direction as price, demand is inelastic.

A per unit tax on a good with negative externalities increases the cost of production, leading to a decrease in supply and a higher equilibrium price, reducing the quantity consumed closer to the socially optimal level.

In the long run, monopolistic competition results in many firms producing differentiated products with low barriers to entry. Firms will earn zero economic profit as new firms enter the market, reducing demand for each existing firm's product.

A binding price ceiling, set below the equilibrium price, creates shortages as the quantity demanded exceeds the quantity supplied.

Progressive taxes take a higher percentage of income from higher-income earners. Regressive taxes take a higher percentage of income from lower-income earners. Proportional taxes take the same percentage of income from all earners regardless of income level.