AP Micro U1

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40 Terms

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Scarcity

There is a finite quantity of goods and resources

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Economics

Study of scarcity and choice

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Resource

Anything that can be used to produce a good

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Good

Item that must be used to receive a benefit

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Service

Someone or something does an action for you for your benefit

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Factors of Production

Land, labor, capital, entrepreneurship

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Economy

System for coordination societies productive and consumptive activities

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Trade

Exchange of goods and services

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Market economy

Producers decide production specifics

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Traditional Economy

Simple trade between families and tribes

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Command economy

Industry is publicly owned, and central authority makes production and consumption decisions

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Mixed economies

Market-based systems with limited government oversight

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Incentives

Rewards/ punishments that motivate choice

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Property rights

Establish ownership, give trade rights

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Opportunity Cost

Value of the next-best decision given up when you make a decision

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Marginal analysis

Study of costs and benefits of doing a little more/ a little less

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Trade-off

When you give up one thing to get another

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Marginal Benefit/ cost

The loss/gain from doing something once more

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Microeconomics

Study of how individuals, households, and firms make decisions and how those decisions interact

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Macroeconomics

Concerned with the behavior of the economy as a whole

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Positive Economics

Branch of economic analysis that describes how the government actually works

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Normative economics

Makes prescriptions about the way the economy should work

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Production Possibilities Curve/ Fronteir

Shows trade offs facing an economy that produces two goods

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<p>Inefficient </p>

Inefficient

Point 1

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<p>Efficient and feasible</p>

Efficient and feasible

Points 3 and 4

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<p>Impossible</p>

Impossible

Point 2

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Economy is efficient

No mutually beneficial transaction goes unexploited

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Economy achieves productive efficiency

It produces on PPC

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Economy achieves allocative efficiency

It produces on PPC and consumers are as well off as possible

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Graph shifts in/out

Production possibilities expand/ decrease

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PPC growth sources

Technology, increase in available resources

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Gains from trade

People can get more from trade than if they were self sufficient

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Specialization

Each person specializing at the tasks they are good at performing

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Competitive advantage

Producer faces lowest opportunity cost of producing

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Absolute advantage

Producer can make more than others with a given amount of time/resource

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Terms of trade

Rate at which one good can be exchanged for another

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Trade is efficient if

A good is obtained for less than the opportunity cost of producing it

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Output method

Opportunity Cost of 1A = B/A of B (constant time)

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Input method

Opportunity Cost of 1A =A/B of B (change in time)

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