AP Macroeconomics Unit 1 Vocabulary - Russell

economics

the study of how people use resources and respond to incentives

scarcity

the economic problem where society's unlimited wants and needs exceed the limited resources available to satisfy them; limited resources

economy

the entire system of production, distribution, and consumption of goods and services in the economy

economic resource

anything used to produce goods and services that is scarce relative to human wants

factors of production

Land, labor, and capital; the broad categories of resources used to produce goods and services in the economy

land

all natural resources; i.e. water, oil, trees, land

labor

human effort (physical and mental); i.e. workers, teachers, builders

capital

man-made tools, machinery, buildings, infrastructure; tools and machines used to make goods; i.e. factories and computers

entrepreneurship

the skill and risk-taking to organize production; the person or idea that brings the other three (land, labor, capital) together to create a business or product; i.e. business owners and inventors

efficiency

using all available resources in a way that maxmizes the production of goods and services without waste

inefficiency

when an economy uses its resources in a way that fails to produce the maximum possible output

opportunity cost

the value of the next best alternative that must be given up when a choice is made

tradeoffs

the situation in which choosing more of one thing means getting less of another because resources are limited

underutilized resources

productive resources—such as labor, capital, or land—that are not being used to their full potential in producing goods and services

economic growth

the increase in an economy's capacity to produce goods and services over time

economic model

a simplified representation that economists use to explain, predict, and analyze the behavior of the overall economy

ceteris paribus

"all other things being equal" or "holding other factors constant"; an assumption that all other relevant factors remain constant when analyzing the impact of one variable

productivity

the efficiency with which an economy converts inputs into outputs

technology

the knowledge, method, and processes used to produce goods and services more efficiently

trade

the exchange of goods and services between countries

capital stock

the total value of all physical assets that are used in production within an economy

accumulation

the gradual increase of economic assets, such as capital, wealth, or resources, over time

specialization

focusing resources on producing a limited range of goods or services to increase efficiency and output

gains from trade

the net benefits that countries or individuals receive by specializing and exchanging goods or services

terms of trade

the ratio at which goods and services are exchanged between countries in international trade

absolute advantage

when a country or producer can produce more of a good with the same resources than another

comparative advantage

when a country or producer can produce a good at a lower opportunity cost than another

competitive market

a market with many buyers and sellers where no single participant can control the price

supply and demand model

a framework explains how prices and quantities of goods are determined in a competitive market

law of demand

as the price of a good rises, the quantity demanded falls.

price

the amount of money required to purchase one unit of a good or service

quantity demanded

the total amount of a good consumers are willing and able to buy at a specific price

demand schedule

a table showing the quantity demanded of a good at various prices

demand curve

a graph showing the relationship between price and quantity demanded, typically downward sloping

movement along the demand curve

change in quantity demanded caused by a change in the price of the good

shift in demand

change in demand caused by factors other than price, moving the entire demand curve left or right

determinants of demand

factors that cause demand to change other than price (i.e. income, tastes, prices of related goods)

complementary good/service

a product that is used together with another good or service

subtitute good/service

products that can replace each other; an increase in the price of one increases demand for the other

normal good

a good for which demand increases as consumer income rises

inferior good

a good for which demand decreases as consumer income rises

law of supply

as the price of a good rises, the quantity supplied increases

quantity supplied

the total amount of a good producers are willing and able to sell at a specific price

supply schedule

a table showing the quantity supplied of a good at various prices

supply curve

a graph showing the relationship between price and quantity supplied, typically upward sloping

movement along the supply curve

change in quantity supplied caused by a change in the price of the good

shift in supply

change in supply caused by factors other than price, moving the entire supply curve left or right

determinants of supply

factors that cause supply to change other than price (i.e. technology, input costs, number of sellers)

equilibrium

the point where quantity demanded equals quantity supplied a market

equilibrium price

the price at which the quantity demanded equals the quantity supplied

equilibrium quantity

the quantity bought and sold at the equilibrium price

surplus

when quantity supplied exceeds quantity demanded at a given price

shortage

when quantity demanded exceeds quantity supplied at a given price

indeterminate price

a situation where the price cannot be predicted because multiple factors affect supply and demand simultaneously

indeterminate quantity

a situation where the quantity exchanged cannot be predicted due to simultaneous shifts in supply and demand