AP Micro Unit 1 Vocab

utility

the total enjoyment or satisfaction consumers receive from the goods and services they consume

marginal utility

the extra utility a consumer obtains from the consumption of one additional unit of a good or service

total utility

the overall satisfaction or enjoyment derived from consuming a good or service

rational agent

consumers that consider opportunity costs, whether implicit or explicit, when calculating the total economic costs of any decision

opportunity cost

the measure of what you give up when making choices

PPC/PPF

output of two goods, identifies efficiency or the condition in which economic resources are being used to produce the maximum amount of goods and services, illustrates the concepts of trade-offs and opportunity costs

explicit cost

expenses paid with a company’s own tangible assets (eg. cash)

scarcity

resources are limited and there are unlimited wants, leading to trade-offs and opportunity costs

FOP’s

land, labor, capital (physical, human, financial), entrepreneurship

entrepreneurship

vision, skill, and willingness to take risks that are needed to create and run a new business

diminishing returns

with the consumption of each additional unit of output, the level of marginal utility decreases

implicit cost

represent a loss of income but do not represent a loss of profit

marginal analysis

the evaluation of the additional benefits derived from an activity compared to the additional costs incurred by that same activity

total net benefits

the difference between total benefits and total costs, are maximized at the optimal choice

constant opportunity cost

when the opportunity cost changes at a set rate

increasing opportunity cost

when the opportunity cost changes at an increasing rate

command economy

state controls all economic activity and make all decisions regarding economic activities, they decide what goods are produced, how much of each good to produce, and how much the people should get (eg. North Korea, former Soviet Union)

market economy

the government plays no role in economic activity, emphasis is on freedom of the individuals (consumers and producers)

mixed economy

economic decisions are taken by the price mechanism and also by the state, private business sector operates along the lines of the free market economy, where the price mechanism determines allocation of resources, the aim of the private sector is to maximize profits while the aim of the public sector is to maximize social welfare (eg. USA, Caribbean Region)

land

includes all natural resources found on or under the ground that are used to produce a good or service

labor

all human time, effort, and talent that goes into making a product (skilled and unskilled labor, workers)

physical capital

human made objects used to create other goods and services, aka capital goods (eg. machines, phones, computers, equipment)

human capital

knowledge and skills, abilities, and specialized talents of people (eg. college, training, technical school)