ap micro UNIT 1

1) Economics

The social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of infinite wants.

2) Opportunity Cost

The value of the next best alternative that is forgone when making a decision. It’s the trade-off of choosing one option over another.

3) Ceteris Paribus

A Latin phrase meaning “with other things being equal.” It assumes that all other variables are held constant while analyzing the effect of a single variable.

4) Market Economy

An economic system where decisions regarding production, investment, and distribution are based on supply and demand, with little or no government intervention.

5) Macroeconomics

The branch of economics that studies the behavior and performance of the entire economy, including issues like national output, inflation, unemployment, and fiscal policy.

6) Command Economy

An economic system where the government or central authority makes all the decisions about the production and distribution of goods and services.

7) Microeconomics

The branch of economics that studies individual agents within the economy, such as consumers, firms, and industries, and how they interact in specific markets.

8) Mixed Economy

An economic system that combines elements of both market economies and command economies, where both private enterprise and government intervention play roles in economic decision-making.

9) Economic Resources

The inputs used in the production of goods and services, including land, labor, capital, and entrepreneurship. These are also referred to as the factors of production.

10) Resource (Factor) Market

A market in which households sell their labor, land, and capital to firms, which use these resources to produce goods and services.

11) Factors of Production

The four basic inputs in the production of goods and services

12) Product Market

A market where finished goods and services are bought and sold. Households are typically the buyers, and firms are the sellers.

14) Increasing Opportunity Cost

A situation where, as more of one good is produced, the opportunity cost of producing each additional unit rises. This happens because resources are not perfectly adaptable to the production of both goods.

15) Full Employment

A condition in which all available labor resources are being used in the most efficient way possible, with only frictional and structural unemployment existing.

16) Constant Opportunity Cost

A situation where the opportunity cost of producing a good remains the same, regardless of how much of it is produced. This occurs when resources are perfectly adaptable to the production of both goods.

17) Full Production

A state where all resources are being used efficiently to produce the maximum possible output, achieving both productive and allocative efficiency.

18) Decreasing Opportunity Cost

When an economy increases the production of a good, the opportunity cost of producing that good decreases. This typically occurs when resources are specialized or more efficient at producing one good.

19) Utility

The satisfaction or pleasure a consumer gets from consuming a good or service.

20) Circular Flow Model

A model of the economy that shows how money, goods, and services flow between households, firms, and the government. It illustrates the interactions between different sectors of the economy.

21) Marginal Analysis

The examination of the additional or incremental costs and benefits of a decision, used to guide decision-making.

22) Economic Growth

The increase in the capacity of an economy to produce goods and services, often measured by an increase in real GDP or GDP per capita over time.

23) Allocative Efficiency

A situation in which resources are allocated in such a way that they maximize the total benefit to society. This occurs when the price of a good equals its marginal cost.

24) Scarcity

The fundamental economic problem of having limited resources to satisfy unlimited wants, forcing choices about what to produce and how to allocate resources.

25) Productive Efficiency

The condition where goods and services are produced at the lowest possible cost, meaning that the economy is operating on its production possibility frontier.

26) Comparative Advantage

The ability of a producer (individual, firm, or country) to produce a good or service at a lower opportunity cost than another producer, which forms the basis for trade.

27) Consumer Goods

Goods that satisfy individual wants directly, as opposed to capital goods, which are used to produce other goods and services.

28) Absolute Advantage

A situation where a producer can produce more of a good or service than another producer with the same amount of resources.

29) Capital Goods

Goods used in the production of other goods and services, such as machinery, buildings, and tools.

30) Specialization

The concentration of resources on the production of a specific good or service to increase efficiency and productivity.

31) Production Possibilities Curve (PPC)

A graphical representation showing the different combinations of two goods that an economy can produce with a given set of resources and technology.

32) Marginal Benefit/Utility

The additional satisfaction or benefit gained from consuming one more unit of a good or service.

33) Net Benefit/Gain

The difference between the total benefits derived from an activity and the total costs incurred from that activity.

34) Marginal Cost

The additional cost incurred from producing one more unit of a good or service.

35) Terms of Trade

The relative price at which one country’s goods are traded for another country’s goods. It represents the rate at which two countries can exchange their goods and services.

36) Utility Maximizing Rule

To maximize total utility, a consumer should allocate their income so that the marginal utility per dollar spent is equal for all goods and services.