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REA AP Microeconomics Crash Course_ Key Terms Questions with 100% Actual correct answers | verified | latest update | Graded A+ | Already Passed | Complete Solution

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REA AP Microeconomics Crash Course_ Key Terms Questions with 100% Actual correct answers | verified | latest update | Graded A+ | Already Passed | Complete Solution

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  • June 18, 2024
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REA AP Microeconomics Crash Course:
Key Terms
absolute advantage - ✅✅ -The ability to produce more of a good or service than
another person or society with the same number of inputs. Alternatively, it means
one person or society can make a unit of output with fewer units of input than its
counterpart.

Accounting profit - ✅✅ -Total revenue a firm receives minus its explicit costs.
Economic profit plus normal profit.

accounting profit - ✅✅-Total revenue minus the explicit costs of production.
allocative efficiency - ✅✅-The amount of production that benefits society the
most. It is achieved when the marginal benefit of production equals the marginal
cost. Also known as socially optimal level of output. A society is allocatively
efficient when it is choosing to make the mix of goods that best satisfy the wants
of its population.

Average fixed cost (AFC) - ✅✅ -Fixed cost divided by the quantity of a firm's
output. Decreases at a decreasing rate as output rises.

Average product - ✅✅ -The total product of a firm divided by the amount of a
particular input used to produce the total product.

Average total cost (ATC) - ✅✅ -The sum of average fixed cost and average
variable cost. Total costs incurred divided by number of units produced.Typically
falls and then rises as output increases.

Average variable cost (AVC) - ✅✅ -Variable cost divided by the quantity of a
firm's output. Typically falls and then rises as output increases.

barriers to entry - ✅✅ -Anything that prohibits or discourages new firms from
entering into a market. Perfect competition is assumed to have no significant
barriers to the entry of new firms or the exit of existing firms from the industry in
the long run.

,capital -✅✅ -The tools, machines, factories, and buildings used to produce
goods and services. Includes physical capital, which ranges from hammers to
industrial robots and human capital, which is "know-how" or specialized skills that
get fused to labor through education and training.

Cartel -✅✅ -A group of producers in an industry who collude in order to form a
functional monopoly.Cartels are illegal in many countries and tend to be rare and
unstable due to the incentives their member firms often have to cheat on agreed
prices and/or quantities.

ceteris paribus - ✅✅ -"Other things being equal." The assumption that all
variables remain constant except for those being studied by the economist.
Ceteris paribus allows economists to understand the relationship between
economic variables. As in science, economists like to try to isolate one factor that
may be changing at a given time to better understand cause and effect.

circular flow - ✅✅ -A model or diagram showing how households and firms
interact in product and resource markets. Circular flow models help visualize how
market expenditures become income and how market types relate to one
another. Complex version of the circular flow can include activities of government
in regulating or participating in various markets and/or international trade.

Collusion - ✅✅ -Agreement by producers in an industry to cooperate and set
prices instead of competing with one another. Considered an unethical or illegal
practice, collusion makes oligopolies function more like monopolies.

command economy - ✅✅ -An economic system in which government planners
make most of the choices for the economy and answer the basic questions of
what to produce, how to produce and for whom to produce. Often contrasted with
market economy because these are the two basic extremes; societies can
choose strategies for managing the scarcity problem that place them along the
spectrum between these two extremes.

commodity - ✅✅-A good that is identical regardless of which firm produced it.

, comparative advantage - ✅✅ -The ability to produce a good or service at a
lower opportunity cost than someone else. Having comparative advantage in
production in production of a good is the basis of the economic argument for why
specialization and trade can benefit two individuals or societies.

Complementary Goods - ✅✅ -Goods that are consumed together, such as cars
and gasoline or peanut butter and jelly.

Constant returns to scale - ✅✅ -When a firm's long-run average total cost
remains constant as the firm's size increases.

Consumer Surplus - ✅✅ -The difference between the equilibrium price in the
market and the price consumers are actually willing to pay for a good or service.
On a graph, consumer surplus is represented as the area beneath the demand
curve, above the price paid, and to the left of the quantity purchased.

Consumer(s) - ✅✅ -People who buy goods and services. Often a household is
considered to be a fundamental unit of consumption.

Copyright - ✅✅ -The government protection of someone's intellectual property
from being taken or sold by another. Serves as a barrier to entry of new firms,
giving the owner of the copyright monopoly power.

Cross-Price Elasticity -✅✅ -The percentage change in the quantity demanded
for one good divided by the percentage change in price of a related good.
Cross-price elasticity determines whether goods are complements (if negative) or
substitutes (if positive).

Deadweight Loss - ✅✅ -The loss of consumer and producer surplus that occurs
when a quantity other than the equilibrium quantity prevails in the market.
Deadweight loss results from over-or under- production of a good and is
associated with allocative inefficiency.

Decreasing (marginal) returns - ✅✅ -When both total and marginal product both
decrease as input is added to the production process.

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