AP Microeconomics Terms

Scarcity

Resources in limited supply

Trade offs

Arises from the lack of sufficient resources to meet society’s wants and needs

Resources

Factors of production

Land

Any resource created by nature. Arable land, mineral deposits, oil and gas reserves or water

Capital

Physical capital: manmade equipment contributing to production of machinery, but also buildings, roads, vehicles and computers

Entrepreneurship

A business leader and innovator of new ideas and business processes. The effort and know-how to put resources together in production

Opportunity cost

The cost of doing something is what you sacrifice to do it.

Money Circular Diagram

A model of an economy showing the interactions among households, firms and government as they exchange goods and services

Production possibilities curve

A graph that shows the best combinations of output. The resources used to produce these goods are scarce and thus this acts as a binding constraint.

Capital goods

Any goods utilized to increase future production. Machines, plants and equipment

Consumer goods

Goods used by consumers and have no future productive use

Consumer goods

Goods used by consumers and have no future productive use

Market Economy

Production and consumption are the result of market functions by many sellers and buyers.

Command economy

There is a central authority making production and consumption decisions

Mixed economy

A mixture of command and market economy

Private property

Individuals own most economic resources. This encourages innovation, investment, growth and trade.

Freedom

Individuals are free to acquire resources to produce good and services and free to choose what to buy and sell

Self-incentives