AP Macroeconomics: Section 1

economics

study of scarcity and choice

individual choice

decisions made by someone on what to do and what not to do

economy

system for coordinating a society’s productive and consumptive activites

market economy

individual producers and consumers determine what, how, and for whom things are made

• little government invovlement

command economy

industry publicly owned, central authority makes all decisions

incentives

rewards or punishments that motivate people to make a particular choice

property rights

establish ownership (creates incentive) and grant individuals the right to trade goods and services with each other

marginal analysis

study of the cost-benefit analysis of things

-doing a little more of one versus a little bit less

resource

anything that can be used to produce something else

land

all resources that come from nature

labor

effort of workers

capital

manufactured goods used to make OTHER goods and services

entrepreneurship

efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and developing new products and production processes

factors of production:

Capital

Entrepreneurship

Land

Labor

scarce

not enough of it available to satisfy all the wants and needs of society

the real cost of an item is its:

opportunity cost

opportunity cost

what you must give up in order to get it

microeconomics

study of how individuals, households, and firms make decisions and hot these decisions interact

(internal)

macroeconomics

overall ups and downs of the economy

(generalized)

economic aggregates

economic measures that summarize data across many different markets (unemployment rate, inflation, GDP, etc.)

positive economics

describes the way the economy ACTUALLY works

normative economics

describes the way the economy SHOULD work

business cycle

alternation between recessions and expansions

depression

very deep and prolonged downturn

recessions

periods of economic downturns when output and employment rates are falling

expansions

recovery period, output and employment are rising

employment

number of people currently working for pay in the economy:

-16+ years old

-make a wage

-actively looking for a j

unemployment

actively looking for work but aren’t currently employed

labor force:

employed + unemployed:

-16+ years old

-wage

-actively looking

output

quantity of goods and services produced

aggregate output

economy’s total production of goods and services for a given time period

inflation

rising overall price level

deflation

falling overall price level

price stability

overall price level is changing only slowly if at all

economic growth

increase in maximum amount of goods and services an economy can produce