AP Econ 1.1

Scarcity

The fundamental economic problem of having limited resources to satisfy unlimited wants and needs. This forces individuals and societies to make choices about how to allocate those resources.

Scarcity Significance

It drives the need for decision-making and opportunity cost, shaping economic behavior at every level—from individual to global.

Choice

The decisions individuals, businesses, and governments make about how to use scarce resources to meet unlimited wants. Every choice involves trade-offs and opportunity costs.

Choice Significance

It arises from scarcity and underscores the need to allocate resources efficiently to maximize satisfaction and utility.

Land

Natural resources

Labor

Human effort and skills

Capital

Tools, machinery, and buildings used in production

Entrepreneurship

Innovation and risk-taking in organizing the other factors

Entrepreneurship Significance

These are the essential building blocks of all economic activity and determine the quantity and quality of what is produced.

Trade-Offs

The concept that choosing one option means giving up another due to limited resources. Every decision has an associated opportunity cost.

Trade-Offs Significance

Reflects the reality of scarcity, reinforcing that every decision involves alternatives foregone—critical for cost-benefit analysis.

Economic Systems

The structure a society uses to allocate resources and distribute goods and services. There are four main types.

Traditional Economy

Based on customs and traditions; roles are typically inherited. Resources are allocated through established practices, and production methods often remain unchanged across generations.

Command Economy

The government controls all economic decisions, including production and allocation.This system aims for equal distribution of resources and can be contrasted with market economies.

Market Economy

Decisions are made by individuals and businesses, with prices determined by supply and demand. This system promotes competition and consumer choice, leading to efficient resource allocation.

Mixed Economy

A blend of market and command systems; includes government intervention and private enterprise.

Efficiency

Making the best use of scarce resources to maximize the production of goods and services with minimal waste.

Marginal Analysis

The process of comparing the additional (marginal) costs and benefits of a decision.

Incentives

Rewards or penalties that influence the choices people make.

Needs vs. Wants

Needs are essentials for survival (food, water, shelter); wants are things that improve quality of life but aren't necessary.

Production Possibilities Curve (PPC)

A graph showing all possible combinations of goods and services that can be produced using all available resources efficiently.

Utility

The satisfaction or benefit a person receives from consuming a good or service.