ap econ unit 1

scarcity

society has unlimited wants and limited resources

trade off

all of the alternatives given up when a choice is made

opportunity cost

the most desirable alternative given up when a decision is made

utility

satisfaction

marginal

additional

allocate

distribute

price

amount the buyer/consumer pays

cost

amount the seller pays to produce a good

investment

money spent by businesses to improve their production

consumer goods

goods created for direct consumption

capital goods

goods created for indirect consumption (aka goods used to make goods)

land

all the natural resources that are used to produce goods and services

labor

any effort a person devotes to a task for which that person is compensated

physical capital

any human-made resource that is used to create other goods and services

human capital

any skills or knowledge gained by a worker through education and experience

entrepreneurship

ambitious leaders that combine the other factors of production to create goods and services

productivity

a measure of efficiency that shows the number of outputs per unit of input

shifters of the ppc

change in resource quantity/quality

change in technology

change in trade

per unit opportunity cost

opportunity cost ÷ units gained

absolute advantage

the producer that can produce the most output of a product

OR

the producer that requires the least amount of inputs to produce a product

comparative advantage

the producer with the lowest opportunity cost for producing a certain product

terms of trade

the agreed upon conditions that would benefit both countries

demand

the different quantities of goods that consumers are willing and able to buy at difference prices

the law of demand

there is an inverse relationship between price and quantity demanded

substitution effect

if the price goes up for a product, consumers buy less of that product and more of another substitute product

income effect

if the price goes down for a product, the purchasing power increases for consumers, allowing them to purchase more

law of diminishing marginal utility

as you consume anything, the additional satisfaction that you will receive will eventually start to decrease

change in price

does not shift the demand or supply curve

shifters of demand curve

tastes and preferences

number of consumers

price of related goods

income

future expectations

substitute

good used in place of another one

if the price of one increases, the demand for the other will increase

complement

two goods that are bought and used together

if the price of one increases, the demand for the other will fall

normal good

as income increases, demand increases

as income falls, demand falls

inferior good

as income increases, demand falls

as income falls, demand increases

supply

the different quantities of a good taht sellers are willing and able to sell at different prices

law of supply

as the price of a good increases, suppliers are willing to sell a higher quantity

shifters of the supply curve

prices/availability of inputs/resources

number of sellers

technology

government action (taxes, subsidies)

expectation of future profits

subsidy

government payment to a business/market to increase the supply of a good

free market system

automatically pushes the price toward equilibrium