What is factors of production in AP Microeconomics?

The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.

What is full employment in AP Microeconomics?

An economic condition where all available resources are being used efficiently to produce the maximum level of output.

What is production possibilities curve in AP Microeconomics?

A model that shows the maximum combinations of two goods or services an economy can produce with available resources and technology, illustrating trade-offs in resource allocation.

What is scarcity in AP Microeconomics?

The fundamental economic problem that arises because most resources are limited while human wants and needs are unlimited, forcing individuals and societies to make choices.

What is command economy in AP Microeconomics?

An economic system in which the government or central authority makes decisions about resource allocation, production, and distribution of goods and services.

What is coordinating mechanism in AP Microeconomics?

The method or process by which an economic system makes decisions about resource allocation and the production and distribution of goods and services.

What is economic system in AP Microeconomics?

A set of institutional arrangements and coordinating mechanisms that a society uses to allocate scarce resources and distribute output.

What is institutional arrangements in AP Microeconomics?

The formal and informal rules, organizations, and structures that coordinate economic activity within an economic system.

What is market economy in AP Microeconomics?

An economic system in which resource allocation and production decisions are determined primarily by supply and demand through price mechanisms and voluntary exchange.

What is mixed economy in AP Microeconomics?

An economic system that combines elements of both market and command economies, with both private enterprise and government involvement in resource allocation.

AP Microeconomics Vocabulary – 499 terms & definitions

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594 essential vocabulary terms and definitions to know for your AP Microeconomics exam

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Key Terms by Unit

💸Unit 1 – Basic Economic Concepts

1.1 Basic Economic Concepts

Term	Definition
factors of production	The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.
full employment	An economic condition where all available resources are being used efficiently to produce the maximum level of output.
production possibilities curve	A model that shows the maximum combinations of two goods or services an economy can produce with available resources and technology, illustrating trade-offs in resource allocation.
scarcity	The fundamental economic problem that arises because most resources are limited while human wants and needs are unlimited, forcing individuals and societies to make choices.

1.2 Resource Allocation and Economic Systems

Term	Definition
command economy	An economic system in which the government or central authority makes decisions about resource allocation, production, and distribution of goods and services.
coordinating mechanism	The method or process by which an economic system makes decisions about resource allocation and the production and distribution of goods and services.
economic system	A set of institutional arrangements and coordinating mechanisms that a society uses to allocate scarce resources and distribute output.
institutional arrangements	The formal and informal rules, organizations, and structures that coordinate economic activity within an economic system.
market economy	An economic system in which resource allocation and production decisions are determined primarily by supply and demand through price mechanisms and voluntary exchange.
mixed economy	An economic system that combines elements of both market and command economies, with both private enterprise and government involvement in resource allocation.
resource allocation	The process of distributing scarce resources and determining what goods and services to produce, how to produce them, and who consumes them.
scarce resources	Productive inputs and materials that are limited in supply relative to the demand for them, requiring allocation decisions.

1.3 Production Possibilities Curve (PPC)

Term	Definition
constant opportunity costs	A situation where the opportunity cost of producing one good remains the same regardless of the quantity produced, resulting in a linear PPC.
decreasing opportunity costs	A situation where the opportunity cost of producing one good decreases as more of that good is produced, resulting in a bowed-in PPC.
economic contraction	A decrease in the economy's productive capacity, represented by an inward shift of the production possibilities curve.
economic growth	An increase in the economy's productive capacity, represented by an outward shift of the production possibilities curve.
efficiency	A market outcome where resources are allocated to maximize total surplus and no mutually beneficial trades remain unexploited.
factors of production	The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.
increasing opportunity costs	A situation where the opportunity cost of producing one good increases as more of that good is produced, resulting in a bowed-out PPC.
inefficiency	A situation where resources are not being used optimally, resulting in production at a point inside the production possibilities curve.
opportunity cost	The value of the next best alternative that must be given up when making an economic choice.
production possibilities curve	A model that shows the maximum combinations of two goods or services an economy can produce with available resources and technology, illustrating trade-offs in resource allocation.
productivity	The output produced per unit of factor input, which influences a firm's decision to hire factors of production.
scarcity	The fundamental economic problem that arises because most resources are limited while human wants and needs are unlimited, forcing individuals and societies to make choices.
technology	Methods and tools used in production that can affect the efficiency and cost of producing goods, thereby influencing supply decisions.
trade-offs	The choices involved in selecting between competing alternatives, where gaining more of one thing requires giving up some of another.
underutilized resources	Resources that are not being used to their full productive capacity, represented by points inside the PPC.

1.4 Comparative Advantage and Trade

Term	Definition
absolute advantage	A situation in which an individual, business, or country can produce more of a good or service than any other producer with the same quantity of resources.
comparative advantage	A situation in which an individual, business, or country can produce a good or service at a lower opportunity cost than another producer.
consumption possibilities	The combinations of goods and services that a consumer or economy can afford to consume given available resources and trade opportunities.
gains from trade	The economic benefits that result when producers specialize according to comparative advantage and engage in mutually beneficial exchange.
mutually beneficial trade	Exchange between parties where both parties gain from the transaction, with each party obtaining goods at a lower opportunity cost than if produced domestically.
opportunity cost	The value of the next best alternative that must be given up when making an economic choice.
production possibilities curve	A model that shows the maximum combinations of two goods or services an economy can produce with available resources and technology, illustrating trade-offs in resource allocation.
specialization	The concentration of productive effort on a limited number of goods or services in which a producer has comparative advantage.
terms of trade	The rate at which one good or service is exchanged for another in trade between producers or countries.

1.5 Cost-Benefit Analysis

Term	Definition
explicit costs	Direct, out-of-pocket monetary payments made for resources and inputs used in production.
implicit costs	Opportunity costs of using resources owned by the firm that do not involve direct monetary payments, such as the cost of financial capital, compensation for risk, or an entrepreneur's time.
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
marginal costs	The additional cost incurred from producing one more unit of output.
opportunity cost	The value of the next best alternative that must be given up when making an economic choice.
optimal choice	The decision that maximizes total net benefits by producing the greatest difference between total benefits and total costs.
rational agents	Economic decision-makers who make choices by comparing benefits and costs to maximize their satisfaction or profit.
total benefit	The overall satisfaction or gain received from consuming or producing a given quantity of a good or service.
total cost	The sum of all fixed costs and variable costs at a given level of output.
total economic costs	The sum of all explicit and implicit costs associated with a decision or production choice.
total net benefits	The difference between total benefits and total costs; represents the overall gain or loss from a decision.
total revenue	The total income a firm receives from selling its goods or services, calculated as price multiplied by quantity sold.
utility	The total satisfaction or benefit that a consumer receives from consuming goods and services.

1.6 Marginal Analysis and Consumer Choice

Term	Definition
constraints	Limitations that restrict economic agents' choices, such as income, time, legal frameworks, or regulatory requirements.
consumer choice theory	A model that explains how consumers make decisions to maximize satisfaction given their constraints and preferences.
diminishing marginal utility	The principle that as a consumer consumes more of a good, the additional satisfaction gained from each additional unit decreases.
fixed costs	Costs that do not change regardless of the level of output produced, such as rent or equipment purchases.
limited income	The finite amount of money a consumer has available to spend on goods and services.
marginal analysis	A method of comparing the additional benefits of increasing an activity with the additional costs to determine optimal decision-making.
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
marginal costs	The additional cost incurred from producing one more unit of output.
marginal utility	The additional satisfaction gained from consuming one more unit of a good or service.
marginal utility per dollar	The additional satisfaction gained from spending one more dollar on a good, calculated as marginal utility divided by price.
optimal decisions	Choices that best satisfy a consumer's goals given their constraints and available options.
optimal quantity	The level of consumption or production that maximizes total benefit or occurs when marginal benefit equals marginal cost.
rational consumer choice	A model assuming consumers make decisions systematically to maximize their satisfaction or utility.
sunk costs	Costs that have already been incurred in the past and cannot be recovered, which should not influence current optimal decisions.
total benefit	The overall satisfaction or gain received from consuming or producing a given quantity of a good or service.
total utility	The total satisfaction or well-being a consumer receives from consuming a combination of goods and services.

📈Unit 2 – Supply and Demand

2.1 Demand

Term	Definition
constraints	Limitations that restrict economic agents' choices, such as income, time, legal frameworks, or regulatory requirements.
demand curve	A graph showing the relationship between the price of a good and the quantity demanded at each price level, typically downward-sloping.
demand curve shift	A change in the entire demand curve caused by changes in determinants of demand other than the good's own-price.
demand schedule	A table showing the quantities of a good demanded at different price levels.
determinants of consumer demand	Factors other than price that influence the quantity of a good consumers are willing to buy, causing shifts in the demand curve.
diminishing marginal utility	The principle that as a consumer consumes more of a good, the additional satisfaction gained from each additional unit decreases.
incentives	Factors that motivate economic actors to make particular choices or take specific actions.
income effect	The change in quantity demanded resulting from a change in a consumer's purchasing power due to a price change.
law of demand	An economic principle stating that as the price of a good increases, the quantity demanded decreases, and vice versa, assuming all other factors remain constant.
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
market demand curve	The aggregate demand curve derived by summing all individual consumers' demand curves at each price level.
property rights	Legal entitlements that specify who owns a resource and what they can do with it; well-defined property rights help internalize externalities.
quantity demanded	The amount of a good or service that consumers are willing and able to purchase at a given price.
substitution effect	The change in quantity demanded resulting from a consumer switching to relatively cheaper alternatives when a good's price increases.

2.2 Supply

Term	Definition
determinants of supply	Factors other than price that affect the quantity of a good producers are willing to supply, including technology, input costs, and producer expectations.
incentives	Factors that motivate economic actors to make particular choices or take specific actions.
individual supply curves	The supply curves of individual producers showing the quantity each producer is willing to supply at different price levels.
law of supply	The economic principle that states the quantity supplied of a good increases when its price increases and decreases when its price decreases, assuming all other factors remain constant.
market supply curve	The horizontal summation of all individual supply curves, showing the total quantity supplied by all producers at each price level.
movement along a supply curve	A change in quantity supplied caused by a change in the good's own price, represented by moving along the existing supply curve rather than shifting the curve itself.
own-price	The price of a good itself, as opposed to prices of other goods; the primary factor causing movement along a supply curve.
price	The amount of money required to purchase a good or service in a market.
quantity supplied	The amount of a good or service that producers are willing and able to offer for sale at a specific price.
supply curve	A graph showing the relationship between the price of a good and the quantity that producers are willing to supply at each price level.
technology	Methods and tools used in production that can affect the efficiency and cost of producing goods, thereby influencing supply decisions.
upward-sloping	The characteristic shape of a supply curve, indicating that quantity supplied increases as price increases.

2.3 Price Elasticity of Demand

Term	Definition
availability of substitutes	The extent to which alternative goods can replace a given good, which is a key factor affecting price elasticity of demand.
elastic demand	A situation where the magnitude of price elasticity of demand is greater than 1, meaning quantity demanded is highly responsive to price changes.
elasticity	A measure of the responsiveness of quantity demanded or supplied to changes in price or other economic variables.
inelastic demand	A situation where the magnitude of price elasticity of demand is less than 1, meaning quantity demanded is not very responsive to price changes.
measures of elasticity	Quantitative calculations used to determine the degree of responsiveness of economic variables to changes in factors such as price, income, or other determinants.
price change	A shift in the market price of a good or service that affects consumer and producer behavior.
price elasticity of demand	A measure of the responsiveness of quantity demanded to changes in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.
quantity demanded	The amount of a good or service that consumers are willing and able to purchase at a given price.
total expenditure	The total amount consumers spend on a good or service, calculated as price multiplied by quantity purchased.
total revenue	The total income a firm receives from selling its goods or services, calculated as price multiplied by quantity sold.
unit elastic	A situation where the magnitude of price elasticity of demand equals 1, meaning the percentage change in quantity demanded is proportional to the percentage change in price.

2.4 Price Elasticity of Supply

Term	Definition
alternative inputs	Substitute factors of production that can be used in place of other inputs in the production process, affecting the elasticity of supply.
elastic supply	A supply condition where the magnitude of price elasticity of supply is greater than 1, indicating that quantity supplied is highly responsive to price changes.
elasticity	A measure of the responsiveness of quantity demanded or supplied to changes in price or other economic variables.
inelastic supply	A supply condition where the magnitude of price elasticity of supply is less than 1, indicating that quantity supplied is not very responsive to price changes.
measures of elasticity	Quantitative calculations used to determine the degree of responsiveness of economic variables to changes in factors such as price, income, or other determinants.
percentage change in price	The proportional change in price from one level to another, expressed as a percentage.
percentage change in quantity supplied	The proportional change in the amount supplied from one level to another, expressed as a percentage.
price change	A shift in the market price of a good or service that affects consumer and producer behavior.
price elasticity of supply	A measure of the responsiveness of quantity supplied to changes in price, calculated as the percentage change in quantity supplied divided by the percentage change in price.
quantity supplied	The amount of a good or service that producers are willing and able to offer for sale at a specific price.
total expenditure	The total amount consumers spend on a good or service, calculated as price multiplied by quantity purchased.
total revenue	The total income a firm receives from selling its goods or services, calculated as price multiplied by quantity sold.
unit elastic supply	A supply condition where the magnitude of price elasticity of supply equals 1, indicating that the percentage change in quantity supplied equals the percentage change in price.

2.5 Other Elasticities

Term	Definition
complements	Goods that are typically consumed together, indicated by negative cross-price elasticity of demand.
cross-price elasticity of demand	A measure of the responsiveness of quantity demanded of one good to changes in the price of another good, calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good.
elasticity	A measure of the responsiveness of quantity demanded or supplied to changes in price or other economic variables.
income elasticity of demand	A measure of the responsiveness of quantity demanded to changes in consumers' income, calculated as the percentage change in quantity demanded divided by the percentage change in income.
inferior good	A good for which quantity demanded decreases when consumer income increases, indicated by negative income elasticity of demand.
measures of elasticity	Quantitative calculations used to determine the degree of responsiveness of economic variables to changes in factors such as price, income, or other determinants.
normal good	A good for which quantity demanded increases when consumer income increases, indicated by positive income elasticity of demand.
price change	A shift in the market price of a good or service that affects consumer and producer behavior.
substitutes	Goods that can be used in place of each other, indicated by positive cross-price elasticity of demand.
total expenditure	The total amount consumers spend on a good or service, calculated as price multiplied by quantity purchased.
total revenue	The total income a firm receives from selling its goods or services, calculated as price multiplied by quantity sold.

2.6 Market Equilibrium and Consumer and Producer Surplus

Term	Definition
consumer surplus	The difference between the maximum price consumers are willing to pay for a good and the actual price they pay, representing the benefit consumers receive from purchasing at market price.
equilibrium	The market condition where the quantity supplied equals the quantity demanded, resulting in a stable price with no tendency to change.
equilibrium price	The price at which the quantity supplied equals the quantity demanded in a market.
equilibrium quantity	The quantity of a good or service that is both supplied and demanded at the equilibrium price.
market efficiency	A condition where perfectly competitive markets maximize total economic surplus in the absence of market failures.
market equilibrium	The point where the quantity supplied equals the quantity demanded at a particular price, resulting in no shortage or surplus in the market.
market failures	Situations where markets fail to allocate resources efficiently, preventing the maximization of total economic surplus.
perfectly competitive markets	Markets characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information where individual firms are price takers.
producer surplus	The difference between the actual price received by a producer and the minimum price at which they are willing to supply a good, representing the benefit producers receive from selling at market price.
quantity demanded	The amount of a good or service that consumers are willing and able to purchase at a given price.
quantity supplied	The amount of a good or service that producers are willing and able to offer for sale at a specific price.
supply-demand model	An economic tool used to understand the factors that influence prices and quantities in markets and explain price and quantity differences across markets or over time.
total economic surplus	The sum of consumer surplus and producer surplus, representing the total benefit to society from market exchange.

2.7 Market Disequilibrium and Changes in Equilibrium

Term	Definition
consumer surplus	The difference between the maximum price consumers are willing to pay for a good and the actual price they pay, representing the benefit consumers receive from purchasing at market price.
equilibrium	The market condition where the quantity supplied equals the quantity demanded, resulting in a stable price with no tendency to change.
equilibrium price	The price at which the quantity supplied equals the quantity demanded in a market.
equilibrium quantity	The quantity of a good or service that is both supplied and demanded at the equilibrium price.
market conditions	The factors affecting supply and demand in a market, such as consumer preferences, input costs, or technological changes.
market disequilibrium	A market condition where the quantity supplied does not equal the quantity demanded, causing prices and quantities to be out of balance.
market shocks	Unexpected events or changes in underlying conditions that cause sudden shifts in supply or demand, moving a market away from equilibrium.
perfectly competitive markets	Markets characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information where individual firms are price takers.
price	The amount of money required to purchase a good or service in a market.
price elasticity of demand	A measure of the responsiveness of quantity demanded to changes in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.
price elasticity of supply	A measure of the responsiveness of quantity supplied to changes in price, calculated as the percentage change in quantity supplied divided by the percentage change in price.
producer surplus	The difference between the actual price received by a producer and the minimum price at which they are willing to supply a good, representing the benefit producers receive from selling at market price.
quantity	The amount of a good or service that is bought or sold in a market.
shortage	A situation in which the quantity demanded of a good exceeds the quantity supplied at a given price, resulting in insufficient supply.
surplus	A situation in which the quantity supplied of a good exceeds the quantity demanded at a given price, resulting in excess inventory.
total economic surplus	The sum of consumer surplus and producer surplus, representing the total benefit to society from market exchange.

2.8 The Effects of Government Intervention in Markets

Term	Definition
allocative efficiency	An economic outcome where price equals marginal cost and resources are allocated to their highest-valued uses.
consumer behavior	The decisions and actions of buyers in response to changes in prices, income, and other economic factors.
deadweight loss	The loss of economic efficiency that occurs when equilibrium is not at the socially optimal quantity, resulting in reduced total surplus.
government policies	Actions and regulations implemented by government to influence economic activity and market outcomes.
incentives	Factors that motivate economic actors to make particular choices or take specific actions.
market outcomes	The results of market activity, including equilibrium price and quantity, consumer surplus, producer surplus, and deadweight loss.
price ceilings	A government-imposed maximum price above which a good cannot be sold, preventing prices from rising to equilibrium.
price floors	A government-imposed minimum price below which a good cannot be sold, preventing prices from falling to equilibrium.
price regulation	Government policies that control the prices firms can charge for goods and services.
producer behavior	The decisions and actions of sellers in response to changes in prices, costs, and other economic factors.
quantity regulation	Government policies that control the quantity of goods and services that can be produced or traded in a market.
subsidies	Government payments or incentives that can be used to encourage production or consumption of goods that generate positive externalities.
subsidy incidence	The distribution of benefits from a subsidy between buyers and sellers, determined by the relative elasticity of supply and demand.
tax incidence	The distribution of the tax burden between buyers and sellers, determined by the relative elasticity of supply and demand.
taxes	Mandatory payments to the government that can be used to discourage production or consumption of goods that generate negative externalities.

2.9 International Trade and Public Policy

Term	Definition
autarky	An economic state in which a country is self-sufficient and does not engage in international trade.
consumer surplus	The difference between the maximum price consumers are willing to pay for a good and the actual price they pay, representing the benefit consumers receive from purchasing at market price.
equilibrium price	The price at which the quantity supplied equals the quantity demanded in a market.
government policies	Actions and regulations implemented by government to influence economic activity and market outcomes.
international trade	The exchange of goods and services between countries, involving imports and exports.
market outcomes	The results of market activity, including equilibrium price and quantity, consumer surplus, producer surplus, and deadweight loss.
markets	Systems where buyers and sellers interact to exchange goods, services, or resources, determining prices through supply and demand.
producer surplus	The difference between the actual price received by a producer and the minimum price at which they are willing to supply a good, representing the benefit producers receive from selling at market price.
quotas	Limits set by a government on the quantity of a good that can be imported, used to alter quantities produced and affect domestic price and economic surplus.
tariffs	Taxes imposed by a government on imported goods that increase the domestic price of those goods and affect consumer surplus, producer surplus, and government revenue.
total economic surplus	The sum of consumer surplus and producer surplus, representing the total benefit to society from market exchange.

🏋🏼‍♀️Unit 3 – Production, Cost, and the Perfect Competition Model

3.1 The Production Function

Term	Definition
average product	The output per unit of input, calculated by dividing total product by the quantity of input used.
cost	The monetary expense incurred in producing goods and services, including both fixed and variable expenses.
diminishing marginal returns	The principle that as a firm employs more of one variable input while holding other inputs constant, the marginal product of that input eventually decreases.
long run	A time period in which all factors of production are variable, allowing firms to enter or exit markets and adjust all inputs.
long-run costs	Production costs in the period when all factors of production are variable and can be adjusted.
marginal product	The additional output produced by employing one more unit of a variable input, holding all other inputs constant.
outputs	The goods or services produced by a firm using inputs.
production	The process of creating goods and services using inputs such as labor, capital, and raw materials.
production function	The relationship between the quantities of inputs used by a firm and the quantity of output produced, showing how output changes with different input levels in both the short run and long run.
productivity	The output produced per unit of factor input, which influences a firm's decision to hire factors of production.
scarce resources	Productive inputs and materials that are limited in supply relative to the demand for them, requiring allocation decisions.
short run	A time period in which at least one factor of production is fixed, and firms can only adjust variable inputs to change output levels.
short-run costs	Production costs in the period when at least one factor of production is fixed, including both fixed and variable costs.
total product	The total quantity of output produced by a firm at different levels of input usage.

3.2 Short-Run Production Costs

Term	Definition
average fixed cost	Total fixed costs divided by the quantity of output produced.
average total cost	The total cost of production divided by the quantity of output produced.
average variable cost	The total variable cost divided by the quantity of output produced; used to determine whether a firm should operate or shut down in the short run.
cost	The monetary expense incurred in producing goods and services, including both fixed and variable expenses.
diminishing marginal returns	The principle that as a firm employs more of one variable input while holding other inputs constant, the marginal product of that input eventually decreases.
division of labor	The separation of production tasks among workers, where each worker specializes in specific tasks to increase productivity.
fixed costs	Costs that do not change regardless of the level of output produced, such as rent or equipment purchases.
input costs	The expenses associated with acquiring factors of production such as labor, materials, and capital.
long run	A time period in which all factors of production are variable, allowing firms to enter or exit markets and adjust all inputs.
long-run costs	Production costs in the period when all factors of production are variable and can be adjusted.
marginal costs	The additional cost incurred from producing one more unit of output.
production	The process of creating goods and services using inputs such as labor, capital, and raw materials.
production function	The relationship between the quantities of inputs used by a firm and the quantity of output produced, showing how output changes with different input levels in both the short run and long run.
productivity	The output produced per unit of factor input, which influences a firm's decision to hire factors of production.
short run	A time period in which at least one factor of production is fixed, and firms can only adjust variable inputs to change output levels.
short-run costs	Production costs in the period when at least one factor of production is fixed, including both fixed and variable costs.
specialization	The concentration of productive effort on a limited number of goods or services in which a producer has comparative advantage.
total cost	The sum of all fixed costs and variable costs at a given level of output.
total variable cost	The sum of all costs that vary with the level of output produced in the short run.
variable costs	Costs that change with the level of output produced; in the long run, all costs are variable because firms can adjust all inputs.

3.3 Long-Run Production Costs

Term	Definition
constant returns to scale	A situation where output increases by the same percentage as the increase in inputs, resulting in constant average costs.
cost	The monetary expense incurred in producing goods and services, including both fixed and variable expenses.
decreasing returns to scale	A situation where output increases by a smaller percentage than the increase in inputs, resulting in higher average costs as production expands.
diseconomies of scale	A situation where long-run average total costs increase as a firm increases its scale of production.
economies of scale	The cost advantages that a firm experiences as it increases production, resulting in lower average costs per unit.
increasing returns to scale	A situation where output increases by a larger percentage than the increase in inputs, resulting in lower average costs as production expands.
long run	A time period in which all factors of production are variable, allowing firms to enter or exit markets and adjust all inputs.
long-run average total cost	The average cost per unit of output when a firm can adjust all inputs; it reflects the firm's cost structure across different scales of production.
long-run costs	Production costs in the period when all factors of production are variable and can be adjusted.
market concentration	The degree to which a small number of firms control a large share of production in a market, influenced by the minimum efficient scale.
market structure	The organizational characteristics of a market, including the number and size of firms, determined partly by the minimum efficient scale.
minimum efficient scale	The smallest level of output at which a firm can minimize its long-run average total costs; plays a role in determining market structure and firm concentration.
production	The process of creating goods and services using inputs such as labor, capital, and raw materials.
productivity	The output produced per unit of factor input, which influences a firm's decision to hire factors of production.
scale of production	The relationship between the quantity of inputs used and the quantity of output produced by a firm.
scarce resources	Productive inputs and materials that are limited in supply relative to the demand for them, requiring allocation decisions.
short run	A time period in which at least one factor of production is fixed, and firms can only adjust variable inputs to change output levels.
short-run costs	Production costs in the period when at least one factor of production is fixed, including both fixed and variable costs.
variable costs	Costs that change with the level of output produced; in the long run, all costs are variable because firms can adjust all inputs.

3.4 Types of Profit

Term	Definition
accounting profit	The difference between total revenue and explicit costs only, without accounting for implicit costs or opportunity costs.
economic profit	The difference between total revenue and total economic cost, including both explicit and implicit costs.
implicit costs	Opportunity costs of using resources owned by the firm that do not involve direct monetary payments, such as the cost of financial capital, compensation for risk, or an entrepreneur's time.
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
marginal costs	The additional cost incurred from producing one more unit of output.
normal profit	The level of profit earned when all implicit costs are fully compensated, resulting in zero economic profit.
profit	The difference between total revenue and total cost, representing the financial gain or loss from economic activity.

3.5 Profit Maximization

Term	Definition
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
marginal costs	The additional cost incurred from producing one more unit of output.
marginal revenue	The additional revenue a firm receives from selling one more unit of output.
profit-maximizing level of production	The quantity of output a firm produces where the difference between total revenue and total cost is greatest, determined by comparing marginal revenue and marginal cost.
profit-maximizing rule	The principle that firms maximize profits by producing at the output level where marginal revenue equals marginal cost.

3.6 Firms' Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market

Term	Definition
average variable cost	The total variable cost divided by the quantity of output produced; used to determine whether a firm should operate or shut down in the short run.
barriers to entry	Obstacles that prevent new firms from entering a market, allowing existing firms to maintain market power.
barriers to exit	Obstacles that prevent firms from leaving a market, such as long-term contracts or sunk costs.
economic losses	A situation where a firm's total revenue is less than its total economic cost, resulting in negative economic profit.
long run	A time period in which all factors of production are variable, allowing firms to enter or exit markets and adjust all inputs.
profit-making opportunities	Situations in which firms can earn economic profits by entering a market or continuing operations.
short run	A time period in which at least one factor of production is fixed, and firms can only adjust variable inputs to change output levels.
shut down	A short-run decision by a firm to produce zero output when price falls below average variable cost.
total revenue	The total income a firm receives from selling its goods or services, calculated as price multiplied by quantity sold.
total variable cost	The sum of all costs that vary with the level of output produced in the short run.

3.7 Perfect Competition

Term	Definition
allocative efficiency	An economic outcome where price equals marginal cost and resources are allocated to their highest-valued uses.
average total cost	The total cost of production divided by the quantity of output produced.
barriers to entry	Obstacles that prevent new firms from entering a market, allowing existing firms to maintain market power.
constant cost industry	An industry where long-run average costs remain unchanged as industry output expands or contracts.
decreasing cost industry	An industry where long-run average costs fall as industry output expands due to economies of scale or decreased input prices.
economic losses	A situation where a firm's total revenue is less than its total economic cost, resulting in negative economic profit.
economic profit	The difference between total revenue and total economic cost, including both explicit and implicit costs.
efficiency	A market outcome where resources are allocated to maximize total surplus and no mutually beneficial trades remain unexploited.
efficient outcomes	Market results where resources are allocated such that no one can be made better off without making someone else worse off, maximizing total surplus.
equilibrium	The market condition where the quantity supplied equals the quantity demanded, resulting in a stable price with no tendency to change.
firm decision making	The process by which firms determine production levels and pricing strategies to maximize profit or minimize losses.
firm entry	The process by which new firms begin operations in a market, typically in response to economic profits.
firm exit	The process by which existing firms leave a market, typically in response to economic losses.
increasing cost industry	An industry where long-run average costs rise as industry output expands due to increased input prices.
long-run competitive equilibrium	A market condition where firms earn zero economic profit, price equals marginal cost and minimum average total cost, and no incentive exists for entry or exit.
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
marginal costs	The additional cost incurred from producing one more unit of output.
marginal revenue	The additional revenue a firm receives from selling one more unit of output.
market power	The ability of a firm to influence the price of a product by changing the quantity it supplies.
perfectly competitive markets	Markets characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information where individual firms are price takers.
price taker	A firm that cannot influence the market price and must accept the price determined by market supply and demand.
productive efficiency	An outcome where firms produce at the lowest possible average total cost, minimizing waste and maximizing output from available resources.
profit maximization	The process of determining the output level where the difference between total revenue and total cost is greatest.
short-run competitive equilibrium	A market condition where firms produce where marginal cost equals marginal revenue, and price may differ from long-run levels, resulting in economic profits or losses.

⛹🏼‍♀️Unit 4 – Imperfect Competition

4.1 Introduction to Imperfectly Competitive Markets

Term	Definition
barriers to entry	Obstacles that prevent new firms from entering a market, allowing existing firms to maintain market power.
exclusive ownership of key resources	Control of essential inputs or assets by existing firms that prevents new competitors from entering the market.
fixed costs	Costs that do not change regardless of the level of output produced, such as rent or equipment purchases.
imperfectly competitive markets	Markets where individual firms have some degree of market power and can influence prices, including monopolistic competition, oligopoly, and monopoly.
inefficiency	A situation where resources are not being used optimally, resulting in production at a point inside the production possibilities curve.
legal barriers to entry	Government-imposed restrictions or regulations that prevent or limit new firms from entering a market.
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
marginal costs	The additional cost incurred from producing one more unit of output.
monopolistic competition	A market structure with many firms producing differentiated products, free entry and exit, and some degree of market power.
monopoly	A market structure with one firm that produces a unique product with no close substitutes and has significant market power.
monopsony	A market structure with one buyer facing many sellers, giving the buyer significant power to influence price.
oligopoly	A market structure dominated by a few large firms whose decisions significantly affect each other and market outcomes.
start-up costs	Initial expenses required to begin operations in an industry, which can serve as a barrier to entry for new firms.

4.2 Monopolies

Term	Definition
barriers to entry	Obstacles that prevent new firms from entering a market, allowing existing firms to maintain market power.
consumer surplus	The difference between the maximum price consumers are willing to pay for a good and the actual price they pay, representing the benefit consumers receive from purchasing at market price.
deadweight loss	The loss of economic efficiency that occurs when equilibrium is not at the socially optimal quantity, resulting in reduced total surplus.
economies of scale	The cost advantages that a firm experiences as it increases production, resulting in lower average costs per unit.
equilibrium	The market condition where the quantity supplied equals the quantity demanded, resulting in a stable price with no tendency to change.
firm decision making	The process by which firms determine production levels and pricing strategies to maximize profit or minimize losses.
imperfectly competitive markets	Markets where individual firms have some degree of market power and can influence prices, including monopolistic competition, oligopoly, and monopoly.
inefficient outputs	Production levels that do not maximize total surplus and result in deadweight loss in the market.
marginal costs	The additional cost incurred from producing one more unit of output.
marginal revenue	The additional revenue a firm receives from selling one more unit of output.
monopoly	A market structure with one firm that produces a unique product with no close substitutes and has significant market power.
natural monopoly	A market where one firm can produce the entire market output at a lower cost than multiple firms due to economies of scale.
producer surplus	The difference between the actual price received by a producer and the minimum price at which they are willing to supply a good, representing the benefit producers receive from selling at market price.
profit	The difference between total revenue and total cost, representing the financial gain or loss from economic activity.

4.3 Price Discrimination

Term	Definition
consumer surplus	The difference between the maximum price consumers are willing to pay for a good and the actual price they pay, representing the benefit consumers receive from purchasing at market price.
deadweight loss	The loss of economic efficiency that occurs when equilibrium is not at the socially optimal quantity, resulting in reduced total surplus.
economic surplus	The sum of consumer surplus and producer surplus; total economic surplus is maximized at the socially optimal quantity.
equilibrium	The market condition where the quantity supplied equals the quantity demanded, resulting in a stable price with no tendency to change.
firm decision making	The process by which firms determine production levels and pricing strategies to maximize profit or minimize losses.
imperfectly competitive markets	Markets where individual firms have some degree of market power and can influence prices, including monopolistic competition, oligopoly, and monopoly.
marginal costs	The additional cost incurred from producing one more unit of output.
market power	The ability of a firm to influence the price of a product by changing the quantity it supplies.
perfect price discrimination	A pricing strategy where a monopolist charges each consumer the maximum price they are willing to pay, capturing all consumer surplus.
price discrimination	The practice of charging different prices to different consumers for the same product based on their willingness to pay.
producer surplus	The difference between the actual price received by a producer and the minimum price at which they are willing to supply a good, representing the benefit producers receive from selling at market price.
profit	The difference between total revenue and total cost, representing the financial gain or loss from economic activity.

4.4 Monopolistic Competition

Term	Definition
advertising	A marketing strategy used by firms to promote their products and create product differentiation in the minds of consumers.
allocative inefficiency	A market condition where the price does not equal marginal cost, resulting in a suboptimal allocation of resources and deadweight loss.
average total costs	The total cost of production divided by the quantity of output produced.
consumer surplus	The difference between the maximum price consumers are willing to pay for a good and the actual price they pay, representing the benefit consumers receive from purchasing at market price.
deadweight loss	The loss of economic efficiency that occurs when equilibrium is not at the socially optimal quantity, resulting in reduced total surplus.
differentiated products	Goods that are perceived as distinct from competitors' products due to differences in quality, features, branding, or other characteristics.
economic profit	The difference between total revenue and total economic cost, including both explicit and implicit costs.
equilibrium	The market condition where the quantity supplied equals the quantity demanded, resulting in a stable price with no tendency to change.
excess capacity	The situation where a firm produces at a level below the output that minimizes average total costs, leaving productive capacity unused.
firm decision making	The process by which firms determine production levels and pricing strategies to maximize profit or minimize losses.
free entry and exit	The ability of firms to enter or leave a market without significant barriers or restrictions.
imperfectly competitive markets	Markets where individual firms have some degree of market power and can influence prices, including monopolistic competition, oligopoly, and monopoly.
marginal costs	The additional cost incurred from producing one more unit of output.
monopolistic competition	A market structure with many firms producing differentiated products, free entry and exit, and some degree of market power.
producer surplus	The difference between the actual price received by a producer and the minimum price at which they are willing to supply a good, representing the benefit producers receive from selling at market price.
profit	The difference between total revenue and total cost, representing the financial gain or loss from economic activity.

4.5 Oligopoly and Game Theory

Term	Definition
barriers to entry	Obstacles that prevent new firms from entering a market, allowing existing firms to maintain market power.
cartel	An agreement among firms to collude and coordinate their actions to reduce competition.
dominant strategy	A strategy that yields the highest payoff for a player regardless of what action the other player takes.
duopoly	A market structure with two firms acting interdependently.
game	A situation in which multiple individuals take actions and each individual's payoff depends on both their own choice and the choices of others.
Nash equilibrium	A condition where no player can increase their payoff by unilaterally changing their action, given the other players' actions.
normal form model	A representation of a game that displays the payoffs resulting from each possible combination of strategies chosen by all players.
oligopoly	A market structure dominated by a few large firms whose decisions significantly affect each other and market outcomes.
payoff	The outcome or reward that a player receives as a result of the strategies chosen by all players in a game.
perfect competition	A market structure with many firms, homogeneous products, free entry and exit, and firms that are price takers.
Prisoner's Dilemma	A game theory scenario in which individual incentives lead players away from a cooperative outcome that would benefit all players.
strategy	A complete plan of actions for playing a game that determines a player's choice in each possible situation.

💰Unit 5 – Factor Markets

5.1 Introduction to Factor Markets

Term	Definition
capital	A factor of production consisting of physical assets such as machinery, equipment, and structures used to produce goods and services.
factor markets	Markets where factors of production (labor, capital, and land) are bought and sold, and where factor prices are determined.
factor prices	The prices paid for factors of production (such as wages for labor, rent for land, and interest for capital) that provide incentives to firms and workers.
factors of production	The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.
firms	Business organizations that combine factors of production to produce and sell goods or services.
interest	The price paid for the use of capital in factor markets.
labor	A factor of production representing human effort and services used in the production of goods and services.
land	A factor of production representing natural resources and physical space used in production.
marginal resource cost	The additional cost incurred by a firm when employing one more unit of a factor of production.
marginal revenue product	The additional revenue generated by employing one more unit of a factor of production, calculated as marginal product multiplied by marginal revenue.
output price	The market price of the goods or services that a firm produces, which affects the firm's demand for labor and other factors of production.
productivity	The output produced per unit of factor input, which influences a firm's decision to hire factors of production.
quantity of labor demanded	The amount of labor that firms are willing and able to hire at a given wage rate.
quantity of labor supplied	The amount of labor that workers are willing and able to provide at a given wage rate.
rent	The price paid for the use of land in factor markets.
wage rate	The price of labor, typically expressed as compensation per unit of time worked.
wages	The price paid for labor services in factor markets.

5.2 Changes in Factor Demand and Factor Supply

Term	Definition
age distribution	The composition of a population by age groups, which affects the size and characteristics of the available labor force.
factor prices	The prices paid for factors of production (such as wages for labor, rent for land, and interest for capital) that provide incentives to firms and workers.
factors of production	The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.
immigration	The movement of workers into a country or region, which affects the supply of labor available to firms.
labor demand curve	A graph showing the relationship between the wage rate and the quantity of labor that firms are willing to hire at each wage level.
labor supply curve	A graph showing the relationship between the wage rate and the quantity of labor that workers are willing to supply at each wage level.
output price	The market price of the goods or services that a firm produces, which affects the firm's demand for labor and other factors of production.
preferences for leisure	Workers' relative desire for free time compared to work, which influences the quantity of labor they are willing to supply.
productivity of the worker	The amount of output a worker can produce per unit of time, which influences how much a firm is willing to pay for labor.
working conditions	The characteristics of a job environment (such as safety, hours, and workplace quality) that influence workers' willingness to supply labor.

5.3 Perfectly Competitive Labor Markets

Term	Definition
factor markets	Markets where factors of production (labor, capital, and land) are bought and sold, and where factor prices are determined.
fixed inputs	Factors of production whose quantity cannot be changed in the short run, such as capital or equipment.
labor	A factor of production representing human effort and services used in the production of goods and services.
marginal factor cost	The additional total cost incurred by a firm when hiring one more unit of a resource, including both the wage of the new worker and any wage increases given to existing workers.
marginal physical product	The additional output produced by one additional unit of a factor of production.
marginal product	The additional output produced by employing one more unit of a variable input, holding all other inputs constant.
marginal revenue product	The additional revenue generated by employing one more unit of a factor of production, calculated as marginal product multiplied by marginal revenue.
marginal revenue product of labor	The additional revenue a firm generates by hiring one more worker, calculated as the marginal physical product of labor multiplied by the marginal revenue.
perfectly competitive factor markets	Markets for factors of production (such as labor) where many buyers and sellers exist, firms are price-takers, and factors are homogeneous.
perfectly competitive labor market	A labor market where wages are determined by market supply and demand, and individual firms are wage-takers.
perfectly competitive markets	Markets characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information where individual firms are price takers.
profit-maximizing behavior	The decision-making process by which firms choose the quantity of inputs to purchase and output to produce in order to maximize economic profit.
value of the marginal product of labor	The additional revenue generated by hiring one more worker, calculated as the marginal physical product of labor multiplied by the price of output.

5.4 Monopsony Markets

Term	Definition
labor	A factor of production representing human effort and services used in the production of goods and services.
marginal factor cost	The additional total cost incurred by a firm when hiring one more unit of a resource, including both the wage of the new worker and any wage increases given to existing workers.
marginal revenue product	The additional revenue generated by employing one more unit of a factor of production, calculated as marginal product multiplied by marginal revenue.
monopsonistic labor market	A labor market in which a single firm or a small number of firms are the primary employers, giving them market power to influence wages.
monopsonistic markets	Markets in which a single buyer (monopsonist) purchases a good or service from many sellers, giving the buyer significant market power to influence prices.
profit-maximizing behavior	The decision-making process by which firms choose the quantity of inputs to purchase and output to produce in order to maximize economic profit.
supply price of labor	The wage rate at which workers are willing to supply their labor in the market.

🏛Unit 6 – Market Failure and the Role of Government

6.1 Socially Efficient and Inefficient Market Outcomes

Term	Definition
asymmetric information	A situation where one party in a transaction has more or better information than the other, leading to market inefficiency.
cost-benefit analysis	A systematic method for evaluating the strengths and weaknesses of alternatives by comparing total expected costs against total expected benefits.
deadweight loss	The loss of economic efficiency that occurs when equilibrium is not at the socially optimal quantity, resulting in reduced total surplus.
efficient allocations	Resource distributions where marginal social benefit equals marginal social cost, resulting in maximum total surplus with no deadweight loss.
equilibrium allocations	The quantities of goods and resources distributed in a market when quantity supplied equals quantity demanded at the market price.
imperfect markets	Markets where firms have some degree of market power and prices do not equal marginal cost, including monopoly, monopolistic competition, and monopsony.
internalized	When all social benefits and costs are reflected in the market prices and decisions of individuals participating in the market.
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
marginal costs	The additional cost incurred from producing one more unit of output.
marginal social benefit	The total benefit to society of consuming one additional unit of a good, including both private and external benefits.
marginal social cost	The total cost to society of producing one additional unit of a good, including both private and external costs.
market equilibrium quantity	The quantity of a good where the quantity demanded equals the quantity supplied at a given price.
market inefficiencies	Situations where the allocation of resources does not maximize total economic surplus, resulting in deadweight loss.
market power	The ability of a firm to influence the price of a product by changing the quantity it supplies.
monopolistic competition	A market structure with many firms producing differentiated products, free entry and exit, and some degree of market power.
monopoly	A market structure with one firm that produces a unique product with no close substitutes and has significant market power.
negative externalities	External costs imposed by the production or consumption of a good that are borne by third parties without compensation.
oligopoly	A market structure dominated by a few large firms whose decisions significantly affect each other and market outcomes.
positive externalities	External benefits generated by the production or consumption of a good that are received by third parties at no cost.
private incentives	Individual motivations and rewards that drive rational agents to make decisions based on personal benefit rather than broader social welfare.
private marginal benefits	The additional benefit received by an individual or firm from producing or consuming one more unit of a good or service.
private marginal costs	The additional cost incurred by an individual or firm from producing or consuming one more unit of a good or service.
public goods	Goods that are both non-rival and non-excludable, meaning they can be consumed by multiple people simultaneously and cannot be restricted to paying consumers.
rational agents	Economic decision-makers who make choices by comparing benefits and costs to maximize their satisfaction or profit.
social efficiency	An economic outcome where the marginal benefit of consuming the last unit equals the marginal cost of producing that unit, maximizing total economic surplus.
socially optimal quantity	The quantity of a good where marginal social benefit equals marginal social cost, maximizing total economic surplus.
total economic surplus	The sum of consumer surplus and producer surplus, representing the total benefit to society from market exchange.

6.2 Externalities 😵☢️💩

Term	Definition
economic surplus	The sum of consumer surplus and producer surplus; total economic surplus is maximized at the socially optimal quantity.
environmental regulation	Government rules and standards designed to limit pollution and protect natural resources from negative externalities.
external benefits	Benefits of an economic activity received by third parties who did not pay for them.
external costs	Costs of an economic activity borne by third parties who did not choose to incur them.
externalities	Costs or benefits of an economic activity experienced by unrelated third parties, arising from a lack of well-defined property rights and/or high transaction costs.
free ride	The act of benefiting from a non-excludable good without paying for it or contributing to its provision.
marginal social benefit	The total benefit to society of consuming one additional unit of a good, including both private and external benefits.
marginal social cost	The total cost to society of producing one additional unit of a good, including both private and external costs.
negative externalities	External costs imposed by the production or consumption of a good that are borne by third parties without compensation.
non-excludable	A characteristic of a good where it is impossible or impractical to prevent individuals from consuming it once it is provided.
positive externalities	External benefits generated by the production or consumption of a good that are received by third parties at no cost.
private benefits	The direct benefits received by a producer or consumer from engaging in an economic activity.
private costs	The direct costs incurred by a producer or consumer in engaging in an economic activity.
private transactions	Voluntary exchanges between individuals that can reassign property rights to internalize externalities.
property rights	Legal entitlements that specify who owns a resource and what they can do with it; well-defined property rights help internalize externalities.
public provision	Government production and distribution of goods or services that generate positive externalities.
socially optimal quantity	The quantity of a good where marginal social benefit equals marginal social cost, maximizing total economic surplus.
subsidies	Government payments or incentives that can be used to encourage production or consumption of goods that generate positive externalities.
taxes	Mandatory payments to the government that can be used to discourage production or consumption of goods that generate negative externalities.
transaction costs	The costs of negotiating, monitoring, and enforcing agreements; high transaction costs can prevent the internalization of externalities.

6.3 Public and Private Goods

Term	Definition
excludable	A characteristic of a good where it is possible to prevent people who have not paid from consuming it.
excludable goods	Goods where producers can prevent people who do not pay from consuming them.
free rider problem	The situation where individuals benefit from a public good without paying for it, reducing incentives for private production of public goods.
non-excludable	A characteristic of a good where it is impossible or impractical to prevent individuals from consuming it once it is provided.
non-rival	A characteristic of goods where consumption by one person does not reduce the amount available for others.
open access resources	Natural resources that are non-excludable and rival, leading to inefficient overconsumption because individuals do not bear the full cost of their use.
private goods	Goods that are both rival and excludable, meaning they can be owned individually and one person's consumption prevents another's.
public goods	Goods that are both non-rival and non-excludable, meaning they can be consumed by multiple people simultaneously and cannot be restricted to paying consumers.
rival	A characteristic of a good where consumption by one person reduces the amount available for others to consume.
rival goods	Goods where consumption by one person reduces the amount available for others to consume.

6.4 The Effects of Government Intervention in Different Market Structures

Term	Definition
allocatively efficient	An outcome where resources are distributed such that marginal benefit equals marginal cost and total surplus is maximized.
antitrust policy	Government policies designed to prevent monopolistic practices and promote competition in markets.
binding price ceilings	A government-imposed maximum price that is set below the equilibrium price, preventing prices from rising above that level.
binding price floors	A government-imposed minimum price that is set above the equilibrium price, preventing prices from falling below that level.
consumer surplus	The difference between the maximum price consumers are willing to pay for a good and the actual price they pay, representing the benefit consumers receive from purchasing at market price.
deadweight loss	The loss of economic efficiency that occurs when equilibrium is not at the socially optimal quantity, resulting in reduced total surplus.
equilibrium quantity	The quantity of a good or service that is both supplied and demanded at the equilibrium price.
government policies	Actions and regulations implemented by government to influence economic activity and market outcomes.
government policy interventions	Actions taken by the government to regulate markets and influence economic outcomes, such as taxes, subsidies, and price controls.
imperfect markets	Markets where firms have some degree of market power and prices do not equal marginal cost, including monopoly, monopolistic competition, and monopsony.
imperfectly competitive markets	Markets where individual firms have some degree of market power and can influence prices, including monopolistic competition, oligopoly, and monopoly.
lump-sum subsidies	A fixed payment by the government that does not vary with the quantity of output produced, affecting only fixed costs and not marginal benefit.
lump-sum taxes	A fixed tax amount that does not vary with the quantity of output produced, affecting only fixed costs and not marginal cost.
marginal benefits	The additional benefit or satisfaction gained from consuming or producing one more unit of a good.
marginal costs	The additional cost incurred from producing one more unit of output.
market failure	A situation where the free market fails to allocate resources efficiently, resulting in a loss of economic welfare.
market outcomes	The results of market activity, including equilibrium price and quantity, consumer surplus, producer surplus, and deadweight loss.
monopolistic competition	A market structure with many firms producing differentiated products, free entry and exit, and some degree of market power.
monopoly	A market structure with one firm that produces a unique product with no close substitutes and has significant market power.
monopsony	A market structure with one buyer facing many sellers, giving the buyer significant power to influence price.
natural monopoly	A market where one firm can produce the entire market output at a lower cost than multiple firms due to economies of scale.
per-unit subsidies	A fixed payment by the government for each unit of a good produced or sold, reducing the price consumers pay and increasing the net price firms receive.
per-unit taxes	A fixed tax amount imposed on each unit of a good sold, affecting both the price consumers pay and the net price firms receive.
perfect competition	A market structure with many firms, homogeneous products, free entry and exit, and firms that are price takers.
perfectly competitive markets	Markets characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information where individual firms are price takers.
price elasticity of demand	A measure of the responsiveness of quantity demanded to changes in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.
price elasticity of supply	A measure of the responsiveness of quantity supplied to changes in price, calculated as the percentage change in quantity supplied divided by the percentage change in price.
price regulation	Government policies that control the prices firms can charge for goods and services.
producer surplus	The difference between the actual price received by a producer and the minimum price at which they are willing to supply a good, representing the benefit producers receive from selling at market price.

6.5 Inequality

Term	Definition
bargaining power	The ability of an individual or group to negotiate favorable terms in economic transactions or labor arrangements.
discrimination	Unfair treatment of individuals based on characteristics such as race, gender, or ethnicity that affects economic opportunities and outcomes.
economic inequality	The unequal distribution of income and wealth among individuals, groups, or countries.
factor of production	An economic resource used in the production of goods and services, including land, labor, capital, and entrepreneurship.
financial markets	Systems and institutions where financial assets such as stocks, bonds, and loans are bought and sold.
Gini coefficient	A numerical measure of inequality that ranges from 0 (perfect equality) to 1 (perfect inequality), calculated from the Lorenz curve.
human capital	The knowledge, skills, education, and experience that individuals possess and can use to generate income.
income	Money or other forms of payment received by individuals or households, typically from employment or other sources.
income inequality	The unequal distribution of income among individuals or groups in an economy.
inheritance	The transfer of wealth and assets from one generation to another, typically through family succession.
Lorenz curve	A graphical representation showing the cumulative distribution of income or wealth, used to visualize the degree of inequality in a population.
marginal product	The additional output produced by employing one more unit of a variable input, holding all other inputs constant.
mobility	The ability of individuals to move between different economic positions or social classes, either within a generation or across generations.
poverty rates	The percentage of a population living below a specified income threshold or poverty line.
progressive tax structure	A tax system where the tax rate increases as income increases, so higher earners pay a larger percentage of their income in taxes.
regressive tax structure	A tax system where the tax rate decreases as income increases, so lower earners pay a larger percentage of their income in taxes.
social capital	The networks, relationships, and social connections that individuals can leverage for economic and social benefits.
wealth	The total value of assets and resources owned by individuals or households, including property, savings, and investments.
wealth inequality	The unequal distribution of accumulated assets and net worth among individuals or groups in an economy.