Chapter 1 and 2 Vocabulary AP Macroeconomics

Vocabulary

Economics

the study of scarcity and choice

Trade

off

Factors of Production (FOPs)

land, labor, capital, entrepreneurship (the economy's resources)

scarce

when a resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it

Opportunity Costs

the real cost of an item: the value of the next best alternative that you must give up in order to get that item

Macroeconomics

the branch of economics that is concerned with overall ups and downs in the economy

Productions Possibilities Curve

illustrates the necessary trade

efficient

describes a market or economy in which there is no way to make anyone better off without making at least one person worse off

comparative advantage

the advantage held by an individual if their opportunity cost of producing a good or service is lowest among the people who could produce that good or service

absolute advantage

the advantage held by an individual when producing a good or service if they can make produce more with a given amount of time and resources

demand schedule

a table that shows how much of a good or service consumers will want to buy at various prices

demand curve

a graphical representation of the demand schedule; shows the relationship between quantity demand and price

Law of demand

says that a higher price for a good or service, all other things being equal, leads people to demand a smaller quantity of that good or service

substitutes

two goods for which a rise in the price of one of the goods leads to an increase in the demand for the other good

complements

two goods for which a rise in the price of one leads to a decrease in the demand for the other good

normal good

describes a good for which a rise in income increases the demand for the good

inferior good

describes a good in which a rise in income decreases the demand for the good.

supply schedule

shows how much of a good or service producers will supply at different prices

supply curve

shows the relationship between the quantity supplied and the price

Law of Supply

says that, other things being equal, the price and quantity supplied of a good are positively related

Input

a good or service that is used to produce another good or service

Equilibrium

an economic situation in which no individual would be better off doing something different

surplus

when the quantity supplied exceeds the quantity demanded (above equilibrium)

shortage

when the quantity demanded of a good or service exceeds the quantity supplied (below equilibrium)

product market

where goods and services are bought and sold

factor market

where resources are bought and sold

Exports

goods and services sold to another country

Imports

goods and services purchased from another country

Gross Domestic Product (GDP)

a measure of of the final output of an economy; the standard measure of the value added created through the production of goods and services in a country during a certain period.

Expenditure Approach

an approach to calculating GDP by adding up aggregate spending on domestically produced final goods and services in the economy

Income Approach

an approach to calculating GDP by adding up the total factor income earned by households from firms in the economy, including rent, wages, interest, and profit

value added approach

an approach to calculating GDP by surveying firms and adding up their contributions to the value of final goods and services.

employed

people who are currently holding a job in the economy, either full time or part time

unemployed

people who are actively looking for work but aren't currently employed

discouraged workers

nonworking people who are capable of working but have given up looking for a job due to the state of the job market

frictional unemployment

unemployment due to the time workers spend in job search

structural unemployment

unemployment that results when workers lack the skills required for the available jobs, or there are more people seeking jobs in a labor market than there are jobs available at the current wage rate

cyclical unemployment

the deviation of the actual rate of unemployment from the natural rate

Inflation

a rising overall price level

Deflation

a falling overall price level

real wage

the wage rate divided by the price level to adjust for the effects of inflation or deflation

real income

income divided by the price level to adjust for the effects of inflation or deflation

base year

the year arbitrarily chosen for comparison when calculating a price index. The price level compares the price of the market basket of goods in a given year to its price in the base year

nominal interest rate

the interest rate actually paid for a loan

real interest rate

the nominal interest rate minus the inflation rate

Real GDP

the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year in order to remove the effects of price changing

Nominal GDP

the total value of all final goods and services produced in the economy during a given year, calculated with the prices current in the year in which the output is produced

GDP per capita

GDP divided by the size of the population; it is equivalent to the average GDP per person