AP Econ

economics

the study of scarcity and choice

individual choice

decisions by individuals about what to do/what not to do

economy

a system for coordinating a society’s productive and consumptive activities

market economy

the decisions of individual producers and consumers largely determine the economy, with little govt. regulation in this

command economy

industry is publicly owned and a central authority makes production and consumption decisions

incentives

rewards or punishments that motivate particular choices

property rights

establish ownership and grand individuals the right to trade goods and services with each other

marginal analysis

the study of the costs and benefits of doing one more unit of something versus one less unit of something

resource

anything that can be used to produce something else

land

all resources that come from nature (minerals, timber, petroleum, etc.)

capital

manufactured goods used to make other goods and services

entrepreneurship

the efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes

scarce resource

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

opportunity cost

what someone must give up in order to gain something else

microeconomics

the study of how people make decisions and how those decisions interact

macroeconomics

the study of the overall ups and downs in an economy

economic aggregates

economic measures that summarize data across many different markets (inflation rate, unemployment rate, etc.)

positive economics

the brand of economic analysis that describes the way the economy actually works

normative economics

makes prescriptions about the way the economy should work

business cycle

the short-run alternation between economic downturns and economic upturns

depression

a very deep and prolonged downturn

recessions

periods of economic downturns when output and employment are falling

expansions/recoveries

periods of economic upturns when output and employment are rising

employment

the number of people currently employed in the economy

unemployment

the number of people who are actively looking for work but aren’t currently employed

labor force

the sum of employment and unemployment

unemployment rate

the percentage of the labor force that is unemployed

output

the quantity of gps and services produced

aggregate output

the economy’s total production of goods and services for a given time period

inflation

rising overall price level

deflation

falling overall price level

economic growth

an increase in the maximum amount of goods and services an economy can produce

model

a simplified representation used to better understand a real-life situation

the other things equal assumption/ceteris paribus

all other relevant factors remain unchanged

trade-off

when one gives up something in order to have something else

production possibilities curve (PPC)

illustrates the trade-offs facing an economy that produces only two goods. it shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced

efficient economy

when there is no way to make anyone better off without making at least one person worse off

technology

the technical means for producing goods and services

trade

providing goods and services to other to receive goods and services in return

gains from trade

people can get more through trade than self-sufficiency

specialization

each person specializes in the task that they are good at preforming

comparative advantage

when the opportunity cost of producing something is lower than another individual’s opportunity cost for the producing same thing

absolute advantage

when one individual can produce more of something than the other given the same amount of time and resources

competitive market

where there are many buyers and sellers of the same good or service, none of whom can influence the price at which it is sold

the supply and demand model

a model of how a competitive market works

demand schedule

shows how much of a good or service consumers will be willing and able to buy at different prices

quantity demanded

the actual amount of a good or service consumers are willing and able to buy at some specific price

demand curve

a graphical representation of the demand schedule. it shows the relationship between quantity demanded and price

law of demand

a higher price for a good or service leads people to demand a smaller quantity of it (assuming all other things are equal)

change in demand

a shift of the demand curve, which changes the quantity demanded at any given price

movement along the demand curve

a change in the quantity demanded of a good that is the result of a change in that good’s price

substitute goods

if a rise in the price of one good leads to an increase in demand for the other good

complement goods

if a decrease in the price of one good leads to the increased demand for both goods

normal good

when a rise in income increases the demand for the good

inferior good

when a rise in income decreases the demand for the good (because they can afford better)

individual demand curve

illustrates the relationship between quantity demanded and price for an individual consumer

quantity supplied

the actual amount of a good or service producers are willing to sell at some specific price

supply schedule

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

supply curve

shows the relationship between quantity supplied and price

law of supply

the price and quantity supplied of a good are positively related (assuming all other things are equal)

change in supply

a shift of the supply curve which changed the quantity supplied at any given price

movement along the supply curve

a change in the quantity supplied of a good that is the result of a change in that good’s price

input

anything that is used to produce a good or service

individual supply curve

illustrates the relationship between quantity supplied and price for an individual producer

equilibrium

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

equilibrium quantity

in a competitive market when price is at a level at which the quantity demanded of a good equals the quantity supplied of it.

equilibrium price/market-clearing price

the price of a good where the quantity demanded equals the quantity supplied

surplus

when quantity of a good supplied exceeds the quantity demanded. occurs when the price is above its equilibrium level

shortage

when the quantity of a good demanded exceeds the quantity supplied. occurs when the price is below its equilibrium level

price controls

legal restrictions on how high or low a market price may go

price ceiling

a maximum price sellers are allowed to charge for a good/service

price floor

a minimum price buyers are required to pay for a good/service

inefficient allocation to consumers

the effect of price ceilings where people who want the good badly and are willing to pay a high price don’t get it, where those who want it less and are only willing to pay a relatively low price do get it

black market

a market in which goods or services are bought and sold illegally. usually because it is illegal to sell at all, or because the prices charged are legally prohibited by a price ceiling

minimum wage

a legal floor on the wage rate, which is the market price of labor

inefficient allocation of sales among sellers

the effect of price floors where sellers who would be willing to sell the good at the lowest price are not always the ones who manage to sell it

quality control/quota

an upper limit on the quantity of some good that can be bought or sold

license

gives its owner the right to supply a certain good or service

demand price

the price at which consumers will demand a given quantity

supply price

the price at which producers will supply a given quantity

wedge

a gap between the demand price and supply price, driven in by the quantity control/quota. the price paid by buying higher than the price received by sellers

quota rent

the difference in a wedge, where the excess money is the cost to rent out a license. also the market price of the license when traded

deadweight loss

the lost gains associated with transactions that do not occur due to market intervention

national income and product accounts/ national accounts

keeps track of the flows of money between different sectors of the economy

household

a person or group of people who share an income

firm

an organization that produces goods and services for sale

product markets

where goods and services are bought and sold

factor markets

where resources, especially capital and labor, are bought and sold

consumer spending

household spending on goods and services

stock

a share in the ownership of a company held by a shareholder

bond

a loan in the form of an IOU that pays interest

government transfers

payments that the government makes to individuals without expecting a good or service in return

disposable income

is the total amount of household income available to spend on consumption and to save. equal to income+government transfers-taxes

private savings

disposable income that is not spend on consumption. equal to disposable income-consumer spending

financial markets

the banking, stock, and bond markets which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing

government borrowing

the amount of funds borrowed by the government in the financial markets

government purchases of goods and services

total expenditures on goods and services by federal, state, and local governments

exports

goods and services sold to other countries

imports

goods and services purchased from other countries

inventories

stocks of goods and raw materials held to facilitate business operations