Microeconomics Flashcards
Grade 12 · Social Studies · Flashcards
Key terms and concepts for mastering microeconomic theory at the AP/advanced level.
Flashcards
- Scarcity
- The fundamental economic problem that resources are limited while human wants are unlimited, forcing individuals and societies to make trade-offs.
- Opportunity Cost
- The value of the next-best alternative foregone when making a decision; the true cost of any choice.
- Elasticity
- A measure of the responsiveness of one economic variable (like quantity demanded) to a change in another variable (like price).
- Normal Good
- A good for which demand increases as consumer income rises and decreases as income falls; income elasticity of demand is positive.
- Inferior Good
- A good for which demand decreases as consumer income rises; consumers substitute toward higher-quality goods as they get wealthier.
- Substitute Goods
- Goods that can replace each other in consumption; when the price of one rises, demand for the other increases (positive cross-price elasticity).
- Complement Goods
- Goods consumed together; when the price of one rises, demand for the other falls (negative cross-price elasticity).
- Allocative Efficiency
- Resources are allocated so that goods are produced at quantities where price equals marginal cost, maximizing total social welfare (consumer + producer surplus).
- Productive Efficiency
- Goods are produced at the lowest possible cost; firms operate at the minimum point of their average total cost curve.
- Game Theory
- The study of strategic interactions between decision-makers; used in economics to analyze oligopoly behavior, bargaining, and competitive strategy (e.g., Prisoner's Dilemma).
- Asymmetric Information
- A situation where one party in a transaction has more or better information than the other, potentially leading to adverse selection or moral hazard.
- Economies of Scale
- Cost advantages that arise as a firm increases its output; average costs fall as production expands over a range of output.
- Pigouvian Tax
- A tax levied on a market activity that generates a negative externality, designed to correct the market failure by making producers internalize the social cost.
- Natural Monopoly
- A market in which a single firm can supply the entire market at a lower cost than two or more firms, typically due to very high fixed costs and significant economies of scale.
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