Your FREE AP Microeconomics Flashcards 2026 – 200+ Cards

The basic economic problem: limited resources against unlimited wants, forcing every society to make choices.

The value of the next-best alternative given up when a choice is made.

Comparing the additional benefit and additional cost of one more unit of an activity; do it while MB ≥ MC.

The additional satisfaction or value from consuming one more unit of a good.

Giving up one thing to get another because resources are scarce.

A graph of the maximum combinations of two goods an economy can produce with resources fully and efficiently used.

An inefficient combination — resources are unemployed or misused.

An unattainable combination given current resources and technology.

Because resources aren't equally suited to both goods, opportunity cost increases as you make more of one.

A straight-line PPC — resources are equally productive in both goods.

An outward shift of the whole curve from more resources or better technology.

Producing more of a good than another producer with the same resources.

Producing a good at a lower opportunity cost than another producer.

The producer with the comparative advantage (lowest opportunity cost), not necessarily the absolute advantage.

Both parties can consume beyond their own PPC when each specializes in its comparative advantage and trades.

The rate at which two goods are exchanged; mutually beneficial when it lies between the two producers' opportunity costs.

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

The study of individual decision-makers — consumers, firms, and specific markets.

The study of the economy as a whole: GDP, inflation, unemployment, and policy.

Positive describes what is (testable); normative prescribes what ought to be (value judgment).

The assumption that decision-makers weigh costs and benefits to make themselves as well off as possible.

A good whose demand rises when income rises (positive income elasticity).

A good whose demand falls when income rises (negative income elasticity).

Concentrating production on the goods one makes at lowest opportunity cost, then trading.

The additional output from adding one more unit of an input.

The satisfaction a consumer gets from a good or service.

A cost already incurred that cannot be recovered; it should not affect marginal decisions.

Manufactured goods used to produce other goods, such as machines and tools.

Producing the combination of goods most valued by society, where marginal benefit equals marginal cost.

As price rises, quantity demanded falls (and vice versa), all else equal — the demand curve slopes down.

As price rises, quantity supplied rises (and vice versa), all else equal — the supply curve slopes up.

A movement along a fixed demand curve caused by a change in the good's own price.

A shift of the whole demand curve caused by a non-price determinant.

Income, tastes, prices of related goods, expectations, and number of buyers.

Input prices, technology, prices of related goods, expectations, number of sellers, taxes and subsidies.

Goods used in place of each other; a price rise in one raises demand for the other (positive cross-price elasticity).

Goods used together; a price rise in one lowers demand for the other (negative cross-price elasticity).

The price and quantity where quantity demanded equals quantity supplied and the market clears.

When price is above equilibrium, quantity supplied exceeds quantity demanded; price falls.

When price is below equilibrium, quantity demanded exceeds quantity supplied; price rises.

When both curves shift, either equilibrium price or quantity is indeterminate (depends on relative shift sizes).

% change in quantity demanded ÷ % change in price; measures responsiveness to price.

Elasticity greater than 1 in absolute value — quantity is very responsive to price.

Elasticity less than 1 in absolute value — quantity is not very responsive to price.

Elasticity equal to 1; total revenue is at its maximum.

Elasticity = 0; a vertical demand curve (quantity doesn't change with price).

Elasticity = infinity; a horizontal demand curve (any price change ends all sales).

Number of substitutes, necessity vs luxury, share of income, and time horizon.

Elastic: a price cut raises total revenue. Inelastic: a price rise raises total revenue.

% change in demand for one good ÷ % change in price of another; positive = substitutes, negative = complements.

% change in demand ÷ % change in income; positive = normal good, negative = inferior good.

% change in quantity supplied ÷ % change in price; higher the more time producers have to adjust.

The difference between willingness to pay and price paid; the area below demand and above price.

The difference between price received and the minimum sellers would accept; area above supply and below price.

Consumer surplus plus producer surplus; maximized at the free-market equilibrium.

The loss of total surplus when the market isn't at its efficient quantity.

A legal maximum price; binding only if set below equilibrium, where it creates a shortage.

A legal minimum price; binding only if set above equilibrium, where it creates a surplus.

A control that actually changes the market outcome (ceiling below, or floor above, equilibrium).

A per-unit tax on a good that shifts the supply curve up by the tax amount, raising price and lowering quantity.

How the burden of a tax is split between buyers and sellers; the more inelastic side bears more of it.

A per-unit government payment that shifts supply down, lowering price and raising quantity.

The additional satisfaction from consuming one more unit of a good.

Each additional unit consumed gives less added satisfaction than the one before.

Allocate spending so the marginal utility per dollar (MU ÷ P) is equal across all goods.

The demand curve slopes down partly because of diminishing marginal utility.

As a good's price falls, your real purchasing power rises, so you can buy more.

As a good's price falls, you switch toward it from now-relatively-pricier substitutes.

A rise in income increases demand for normal goods and decreases demand for inferior goods.

Own-price change = movement along the curve; any other determinant = shift of the curve.

The amount buyers are willing and able to buy at a specific price.

Price times quantity (TR = P × Q).

A persistent shortage, possible black markets, and deadweight loss.

A period in which at least one input (usually capital) is fixed.

A period in which all inputs are variable and firms can enter or exit.

A cost that does not change with output (e.g., rent); exists only in the short run.

A cost that changes with output (e.g., labor, materials).

TC = total fixed cost + total variable cost.

Total cost divided by quantity (TC ÷ Q); U-shaped in the short run.

Variable cost divided by quantity (TVC ÷ Q).

Fixed cost divided by quantity (TFC ÷ Q); always falls as output rises.

The added cost of producing one more unit: change in total cost ÷ change in quantity.

MC passes through the minimum of both ATC and AVC.

Diminishing marginal returns — added inputs add less output, so each unit costs more.

As a variable input is added to fixed inputs, marginal product eventually declines.

The total output produced with a given amount of inputs.

The extra output from one more unit of a variable input.

Total product divided by the quantity of the variable input.

Long-run average total cost falls as output rises (often from specialization).

Long-run average total cost rises as output rises (often from coordination problems).

Long-run average total cost is flat as output rises.

Produce the quantity where marginal revenue equals marginal cost (MR = MC).

The added revenue from selling one more unit.

Total revenue minus explicit (out-of-pocket) costs.

Total revenue minus explicit AND implicit (opportunity) costs.

Zero economic profit — the firm earns just enough to keep resources in their current use.

The opportunity cost of using resources the firm already owns.

Many firms, identical products, free entry/exit, and perfect information; firms are price takers.

A firm too small to affect market price; it faces a horizontal demand curve.

Horizontal at the market price, so P = MR = AR.

Produce where P = MC (since P = MR for a price taker).

Shut down if price is below the minimum of average variable cost (P < AVC).

The minimum point of the AVC curve.

The minimum point of the ATC curve, where economic profit is zero.

Earned when P > ATC at the profit-maximizing quantity.

Incurred when AVC < P < ATC; the firm keeps operating to cover some fixed costs.

Free entry/exit drives economic profit to zero: P = MR = MC = minimum ATC.

Producing at the lowest possible cost (minimum ATC) — achieved by PC in the long run.

Achieved where P = MC, so the value of the last unit equals its cost.

New firms increase market supply, lowering price until profits disappear.

Firms leaving decrease market supply, raising price until losses disappear.

Market supply is the horizontal sum of all firms' marginal cost curves above AVC.

A direct, out-of-pocket payment for resources (wages, rent, materials).

Falling average fixed cost dominates at low output; rising marginal cost dominates at high output.

Price minus average total cost (P − ATC) at the profit-maximizing quantity.

Equals the market price, because each extra unit sells at that same price.

Markets where firms have some market power and face a downward-sloping demand curve.

The ability of a firm to influence the price of its product.

A market with a single seller of a product with no close substitutes and high barriers to entry.

Obstacles like economies of scale, patents, control of a resource, or legal restrictions that block new firms.

A firm that sets its price by choosing output along a downward-sloping demand curve.

Because it must lower price on all units to sell more, marginal revenue is below price.

Produce where MR = MC, then charge the higher price on the demand curve.

Output is restricted and price exceeds marginal cost, causing deadweight loss.

An industry where one firm can supply the whole market at lower cost due to large economies of scale.

Charging different buyers different prices for the same good based on willingness to pay.

Market power, ability to separate buyers, and prevention of resale.

Charging each buyer their maximum willingness to pay; captures all surplus, no deadweight loss.

Many firms selling differentiated products with free entry and some pricing power.

Making a product distinct (brand, quality, location) to gain some market power.

Entry drives economic profit to zero; firms produce with excess capacity.

Producing below the minimum-ATC output, so the firm isn't productively efficient.

A market dominated by a few interdependent firms.

Each oligopolist's best choice depends on what rivals are expected to do.

The study of strategic decisions among interdependent players.

A table showing each player's outcomes for every combination of strategies.

A strategy that is best for a player regardless of what the other does.

An outcome where no player can do better by changing strategy alone.

A game where individually rational choices lead to a jointly worse outcome.

Firms cooperating to set price or output like a monopoly; often illegal and unstable.

A group of firms that collude to act as a single monopolist (e.g., OPEC).

Each member has an incentive to cheat by producing more, undermining the agreement.

The demand (average revenue) curve lies above the marginal revenue curve.

Price exceeds marginal cost, so society would gain from more output that isn't produced.

Laws that limit market power and prohibit anti-competitive practices like collusion.

Earned where P > ATC at the quantity where MR = MC.

Government grants of temporary exclusive rights that create legal barriers to entry.

A model of oligopoly pricing where rivals match price cuts but not price increases.

From most to least competitive: perfect competition, monopolistic competition, oligopoly, monopoly.

Removing legal barriers to allow competition and lower prices.

A market where firms buy resources (labor, land, capital) and households sell them.

Demand for an input that comes from demand for the product it helps produce.

The extra revenue from hiring one more unit of a resource: marginal product × marginal revenue.

A firm's MRP curve is its demand curve for that input.

The additional cost of hiring one more unit of a resource.

Hire each unit of a factor up to where MRP equals MRC.

The factor-market hiring rule is the twin of the product-market output rule.

Set where market labor supply meets market labor demand; each firm is a wage taker.

Hire workers up to where MRP equals the market wage.

Caused by changes in product price, productivity, or the prices of other inputs.

Caused by changes in population, preferences, wages in other jobs, or immigration.

A market with a single buyer of a resource, often labor.

Hires fewer workers and pays a lower wage than a competitive labor market.

Rises faster than the wage, because hiring one more worker raises the wage for all workers.

The extra output produced by one more worker.

Diminishing marginal product lowers MRP as more workers are hired.

Hire inputs so the marginal product per dollar (MP ÷ P) is equal across all inputs.

Employ each input until its MRP equals its price (MRP = MRC for every input).

Payment to a factor above the minimum needed to keep it in its current use.

Productivity, human capital, working conditions, and skill scarcity.

The knowledge and skills workers gain through education and experience that raise productivity.

Where firms acquire physical or financial capital; demand depends on the return relative to cost.

Firms hire workers not for their own sake but to produce salable output.

Raises MRP, shifting the firm's labor demand curve right.

A firm in a competitive labor market that must pay the going market wage.

When a free market fails to allocate resources efficiently on its own.

A cost or benefit imposed on third parties not part of a transaction.

A cost on third parties (e.g., pollution); the market overproduces.

A benefit to third parties (e.g., vaccination); the market underproduces.

Marginal private cost plus any external cost; relevant for negative externalities.

Marginal private benefit plus any external benefit; relevant for positive externalities.

Where marginal social benefit equals marginal social cost (MSB = MSC).

A per-unit tax equal to the external cost that corrects a negative externality.

A per-unit subsidy equal to the external benefit that corrects a positive externality.

If property rights are clear and bargaining is costless, private parties can solve externalities themselves.

A good that is non-excludable and non-rival, like national defense.

You cannot prevent non-payers from using the good.

One person's use does not reduce the amount available to others.

People enjoy a good without paying, so markets underprovide public goods.

A good that is both excludable and rival in consumption.

A good that is non-excludable but rival, prone to overuse.

The overuse and depletion of a common resource because no one bears its full cost.

A graph showing the cumulative share of income earned by cumulative shares of the population.

A 0-to-1 measure of income inequality; 0 is perfect equality, 1 is maximum inequality.

A tax that takes a larger percentage of income as income rises.

A tax that takes a larger percentage of income from low earners than high earners.

A tax that takes the same percentage of income at all income levels (flat tax).

A government payment (like welfare) for which no good or service is exchanged.

Government action to limit monopoly power and promote competition.

Restricted output and price above marginal cost create deadweight loss.