ap macro chapter 1

scarcity

having unlimited wants but limited resources

textbook definition of economics

social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants

microeconomics

study of small economic units such as individuals, firms, and markets

macroeconomics

study of the large economy as a whole or economic aggregates

positive statements

based on facts; avoids value judgments (what is)

normative statements

includes value judgments (what ought to be)

marginal analysis

making decisions based on increments

trade-offs

all the alternatives that we give up when we make a choice

opportunity costs

the most desirable alternative given up when you make a choice

utility

satisfaction

marginal

additional

allocate

distribute

price

the amount the buyer (or consumer) pays

cost

the amount the seller pays to produce a good

consumer goods

created for direct consumption

capital goods

created for indirect consumption

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

productivity

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

production possibilities curve (PPC, frontier)

a model that shows alternative ways that an economy can use its scarce resources

opportunity cost

the benefit missed out when choosing an alternative; the next best thing

absolute advantage

the producer that can produce the most output or requires the least amount of inputs (resources)

comparative advantage

the producer with the lowest opportunity cost

output questions

the amount of inputs, like time, workers, or other resources, are the same for both countries. only the output of each country is different

input questions

the amount of output, like cars, planes, or corn, are the same for both countries. only the inputs for each country are different

terms of trade

agreed upon conditions that benefit both countries