AP Microeconomics Unit 6: Policy Intervention and Income Inequality

Market Power

The ability of a firm to influence the price of a good or service in the market.

Lump-Sum Tax

A fixed charge that a firm must pay regardless of its output level.

Per-Unit Tax

A tax imposed on each individual unit of a good produced.

Marginal Cost (MC)

The cost of producing one additional unit of a good.

Average Total Cost (ATC)

Total costs divided by the quantity produced.

Antitrust Laws

Legislation aimed at preventing monopolies and promoting competition.

Deadweight Loss (DWL)

The loss of economic efficiency that can occur when equilibrium for a good or service is not achieved.

Socially Optimal Price

The price at which the quantity demanded equals the quantity supplied, leading to allocative efficiency.

Fair Return Price

The price at which a firm breaks even, ensuring normal profit.

Lorenz Curve

A graphical representation of income distribution within an economy.

Gini Coefficient

A mathematical ratio that represents income inequality in a population.

Progressive Tax

A tax system where the tax rate increases as income increases.

Regressive Tax

A tax system where the tax rate decreases as income increases.

Proportional (Flat) Tax

A tax system where everyone pays the same percentage of income.

Cumulative Percentage

The total percentage of a population or income earned by groups as you move through the population.

Fixed Cost

Costs that do not change with the level of output.

Variable Cost

Costs that change with the level of output.

Allocative Efficiency

A state of the economy where production represents consumer preferences.

Economic Profit

The difference between total revenue and total cost, including both explicit and implicit costs.

Subsidy

A financial support extended to an economic sector or business with the aim of promoting economic and social policy.

Price Ceiling

A maximum price that can be legally charged for a good or service.

Price Floor

A minimum price that must be paid for a good or service.

Utility Regulator

A government body that regulates the pricing and operations of utility companies.

Collusive Behavior

Agreements between firms in an industry to restrict competition.

Market Failure

A situation where the allocation of goods and services is not efficient.