Macroeconomics, AP Vocabulary Unit 1

Absolute Advantage

The ability of a country or individual to produce more of a good or service with the same amount of resources compared to others.

• Comparative Advantage

The ability of a country or individual to produce a good or service at a lower opportunity cost than others.

• Exports

Goods and services produced in one country and sold to others.

• Imports

Goods and services bought from other countries and brought into a country.

• Opportunity Cost

The value of the next best alternative that you give up when making a choice.

• Factors of Production

The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.

• Land

Natural resources used in production, such as minerals, forests, and water.

• Labor

The work done by people to produce goods and services.

• Entrepreneurship

The ability to organize and manage the other factors of production to create goods and services, often involving innovation and risk-taking.

• Capital (Capital Goods)

Tools, equipment, and buildings used to produce goods and services.

• Inputs

The resources (like land, labor, and capital) used to produce goods and services.

• Outputs

The goods and services produced from the inputs.

• Trade-Offs

The choices you make when you have to give up one thing to get something else.

• Scarcity

The basic economic problem where unlimited wants exceed limited resources.

• Recession

A period of economic decline, usually marked by a decrease in GDP, employment, and trade lasting for at least six months.

• Substitutes

Goods that can replace each other; if the price of one goes up, the demand for the other usually increases.

• Complements

Goods that are often used together; if the price of one goes up, the demand for the other usually decreases.

• Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers.

• Equilibrium Quantity

The quantity of a good that is bought and sold at the equilibrium price.

• Competitive Market

A market where many buyers and sellers interact, and no single buyer or seller can control the price.

• Production Possibilities Curve/Frontier

A graph that shows the maximum possible output combinations of two goods or services that can be produced with available resources and technology.

• Surplus

When the quantity of a good supplied exceeds the quantity demanded at the current price.

• Shortage

When the quantity of a good demanded exceeds the quantity supplied at the current price.