AP Econ Vocab

Economics

Behavior science concerned with how scarce resources are allocated among unlimited needs, wants, and desires

Scarce

Fundamental concept of Economics; limited and wanted; resources are limited but desires and wants unlimited

Resource

=Factors of Production

Land

Anything that occurs naturally in nature either on, below, or above the ground

Labor

Talent, skills, and effort that go into the production of goods and services

Capital

“Stuff” made to make other “stuff”

• Physical- tools, equipment, factories

• Human- education, experience, skills that make you a productive worker

• Financial- money

Entrepreneurship

ability to combine resources to satisfy society’s need, wants, and desires; requires problem-solving, risk taking, and decision making

Opportunity Cost

the highest valued, foregone alternative to any decision made; always the second choice; the next best thing; can only be one

Trade-Offs

giving up a little of one thing for a little more of something else

Production Possibilities curve

a simplified model of an economy producing only two goods(or two categories of goods)

• Straight Line- Constant Opportunity Cost between the production combinations;resources used to ake the two products are perfectly subsitutible

• Parabolic, Bowed Out, Curved= increasing opportunity cost between the production combinations; resources being used to make the two products are NOT perfectly substitutable

Efficient

using scarce resources optimally to maximize output and satisfaction

Law of Increasing Cost

the more a good is produced , the higher the opportunity cost

Substitutes

products or services that satisfy similar consumer needs; resources can be reallocated but your factors of production might not be used efficiently

Marginal Benefit

extra benefit gained from consuming an additional good or service

Marginal Cost

the extra cost of producing an additional good or service

Allocative Efficiency

Happens when the amount of a good or service produced is most beneficial to society

MB=MC

Absolute Advantage

advantage realized by the producer able to generate greater output with a given amount of time or resources; producing more of a good does not mean that country produces at a lower opportunity cost

Comparative Advantage

advantage realized by the producer able to generate a given output at a lower opportunity cost;…+specialization=can acquire more goods at lower cost

Specialization

working in a well defined area

Gains from Trade

the economic benefits from voluntary exchange, primarily achieved through specialization based on comparative advantage, allowing countries or individuals to consume beyond their own production limits, increasing overall welfare, variety, innovation, and efficiency by reallocating resources to more productive uses and lowering costs

Competitive Market

a market in which there are many buyers and sellers of the same good or service, none of whom can influence; so much comp, market sets the price

Quantity Demanded

the actual amount of a good or service, consumers are willing and able to buy at some specific price

Law of Demand

Price Must Do Something First

as price goes down, quantity demanded goes up

as price goes up quantity demanded goes down

Demand is from the perspective of the consumer in a competitive market

Demand Curve

graphical representation of demand in a competitive market-shows relationship between price and quantity demanded, everything else is assumed constant

Movement Along the Demand Curve

Price changes= movement Along the curve;changing the price changes the quantity demanded

Change in Demand

Shift;A change in a factor(determinent), other than price that causes consumers to purchase more or less of a good or service at every price level

increase in demand= the demand curve will shift right

decrease in demand= demand curve will shift left

Normal Good

a product whose demand increases as consumers' income rises and decreases as income falls

Inferiror Good

a product whose demand decreases as consumers' income rises, and demand increases as income falls- when you have money you will buy alternative to this

Complements

goods often consumed together, like printers and ink or cars and gasoline; if the price of one (e.g., printers) falls, the demand for the other (ink) increases, causing a rightward shift in its demand curve, reflecting a negative cross-price elasticity of demand

Equilibrium Price

where the quantity supplied equals the quantity demanded, making all participants "price takers" who accept the prevailing market rate. 

Quantity Supplied

the actual amount of a good or service producers are willing and able to sell at some specific price

Law of Supply

the price and quantity supplied of a good or service are positively related

Supply Curve

a graphical representation of supply in a competitive market. It shows the relationship between quantity supplied and price

Movement Along the Supply Curve

Changes in the Quantity Supplied; a change in the price of a product that causes producers to want to sell more or less of that good or service; changing the price changes the quantity supplied

Change in Supply

A change in a factor, other than price, that causes producers to provide more or less of a good or service at all price levels

Individual Choice

Decisions made by individuals about how to use limited resources

Economy

A system for producing, distributing, and consuming goods and services

Market Economy

An economy where prices and production are determined by supply and demand

Microeconomics

Study of individual decision-makers and markets

Macroeconomics

Study of the economy as a whole

Economic Aggregates

Economy-wide measures (output, inflation, unemployment)

Positive Economics

Analysis based on facts and cause-effect relationships

Normative Economics

Analysis based on values and opinions about what should be

Business Cycle

Fluctuations in economic activity over time

Depression

A prolonged and severe economic downturn

Recessions

Periods of declining economic activity

Expansions

Periods of increasing economic activity

Employment

The use of labor resources in production

Unemployment

People actively seeking work but unable to find jobs

Labor Force

Employed plus unemployed individuals actively seeking work

Unemployment Rate

Percentage of the labor force that is unemployed

Output

The total quantity of goods and services produced

Aggregate Output

Total production in an entire economy

Inflation

A sustained increase in the overall price level

Deflation

A sustained decrease in the overall price level

Price Stability

Little or no change in the overall price level

Economic Growth

An increase in aggregate output over time

Model

A simplified representation of reality used to explain economic behavior

Other Things Equal Assumption (Ceteris Paribus)

Assuming all other factors remain constant

Technology

Knowledge and tools used to produce goods and services

Trade

Voluntary exchange of goods and services

Supply and Demand Model

A model explaining how prices and quantities are determined

Demand Schedule

Table showing quantities demanded at different prices

Individual Demand Curve

Demand curve for a single consumer

Supply Schedule

Table showing quantities supplied at different prices

Input

Resources used in production

Individual Supply Curve

Supply curve for a single producer

Equilibrium

Where quantity demanded equals quantity supplied

Market-Clearing Price

Price that eliminates surplus and shortage

Equilibrium Quantity

Quantity bought and sold at equilibrium price

Surplus

Excess quantity supplied at a given price

Shortage

Excess quantity demanded at a given price

Price Controls

Government-imposed limits on prices

Price Ceiling

Maximum legal price.

Price Floor

Minimum legal price

Minimum Wage

A legally established minimum price for labor