AP Econ Final

What is shortage in economics?

Shortage occurs when the quantity of a good or service demanded exceeds the quantity supplied; it happens when the price is below its equilibrium level and is also known as excess demand

What are the factors of production?

Land, Labor, Capital, and Entrepreneurship.

What is the production possibilities curve?  

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

What is opportunity cost?

the real cost of an item: what you must give up in order to get it.

What is scarcity?

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

What are trade-offs?

when you give up something in order to have something else

What is physical capital?

consists of manufactured productive resources such as equipment, buildings, tools, and machines

What is a centrally planned economy?

an economic system where the government makes all decisions about the production and distribution of goods and services.

What is a free market?

an economic system based on supply and demand with little government intervention.

What is socialism?

an economic system where the means of production are owned and controlled collectively, often by the government.

What is specialization?

when each person focuses on the task they are good at performing.

What is a mixed economy?

incorporates elements of both free markets (capitalism) and government intervention (socialism).

Who is Karl Marx? 

a philosopher and economist who co-authored The Communist Manifesto and is known for his theories about socialism and communism.

Who is Adam Smith?  

the father of modern economics, known for The Wealth of Nations and the concept of the invisible hand.

Who is Vladimir Lenin?  

a revolutionary leader who applied Marxist theory to create the Soviet Union's communist state.

What is a traditional economy?  

one where customs, traditions, and beliefs shape the production and distribution of goods and services.

What is a product market?

where goods and services are bought and sold

What is laissez-faire in economics?

the idea that economies function best when there is minimal government interference.

How does new technology help the economy?

It creates efficient production processes, lowers costs, increases productivity, and offers a greater variety of goods and services without increasing input costs.

What is standard of living?

refers to the level of wealth, comfort, and access to goods and services available to a population, often measured by GDP per capita.

What is gross domestic product (GDP)?

the total value of all final goods and services produced in the economy during a given year.

What is Social Security?

a government program providing financial assistance to retirees, disabled individuals, and survivors of deceased workers.

What are the benefits of Social Security?

It ensures a safety net for retirees, disabled persons, and families facing loss of income due to death or incapacity.

What is elasticity?  

measures how much the quantity demanded or supplied changes in response to a change in price.

What is inelasticity? 

refers to a situation where the quantity demanded or supplied changes little with a change in price.

What are inferior goods?

goods for which demand decreases as income rises, as they are considered less desirable than more expensive alternatives.

What are complements?

two goods that are often consumed together; if the price of one rises, the demand for the other decreases

What are substitutes? 

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

Who are the baby boomers? 

the generation born between 1946 and 1964, following World War II.

How do baby boomers impact the economy? 

Their aging affects healthcare costs, retirement systems, and workforce demographics.

What is the law of demand?

states that, other things being equal, a higher price leads to a smaller quantity demanded.

What is the law of supply?

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

What is fixed cost?

a cost that does not change with the quantity of output produced

What is the equilibrium level?

the point where supply equals demand in a market

What are price ceilings?

government-imposed maximum prices for goods or services, like rent controls.

What are price floors?

government-imposed minimum prices, such as minimum wage laws

 What is rationing? 

the distribution of goods and services based on criteria other than price, often during times of scarcity.

What is quantity demanded?

the amount of a good consumers are willing and able to buy at a specific price.

What is quantity supplied?

the amount of a good producers are willing to sell at a specific price.

What is minimum wage?  

the lowest legal hourly wage that employers can pay their workers

What is rent control?

refers to government-imposed limits on the amount landlords can charge for rent.

What is rent abatement?

a reduction or suspension of rent payments, often granted during economic hardship or when a property is uninhabitable.

What is collective bargaining?

the process by which employers and employees negotiate wages, working conditions, and other employment terms.

 What is inflation?  

the general increase in prices and decrease in the purchasing power of money over time.

What is deflation?

the general decrease in prices and increase in the purchasing power of money.

What is a barter system? 

an economic system where goods and services are exchanged directly without using money.

What is the FDIC?

ensures bank deposits to protect consumers in case of bank failures.

What are bank runs?

occur when many people withdraw their money from a bank simultaneously due to fears that the bank might fail.

What is M1?

a measure of the money supply that includes physical currency, demand deposits, and other liquid assets.

What is M2?

a broader measure of the money supply that includes M1 along with savings accounts, time deposits, and money market funds.

What is excess demand?

when the quantity demanded of a good exceeds the quantity supplied at a given price

What is the invisible hand?

Adam Smith's concept that individual self-interest in a free market leads to economic efficiency and benefits society as a whole.

Why is there competition in the economy?

arises because resources are scarce, and individuals or firms strive to maximize their benefits.

What is capital?

refers to physical assets like machinery, buildings, and tools used to produce goods and services.

What is an entrepreneur?

an individual who organizes and operates a business, taking on financial risks to do so

What is a business cycle?

the periodic fluctuations in economic activity, including expansion, peak, contraction, and trough.

What are expansions?  

are periods of economic growth, rising GDP, and increased employment.

What is a recession? 

a period of economic decline characterized by reduced GDP and higher unemployment, lasting at least six months.

What are property rights?

legal rights that allow individuals to own, use, and transfer resources and property.

What are wasted resources?

when resources are not used efficiently, leading to lower productivity.

What are black markets? 

illegal markets where goods or services are traded outside of government regulations.

What is real GDP?

GDP adjusted for inflation, reflecting the true value of goods and services produced.

What is nominal GDP? 

GDP measured in current prices, without adjusting for inflation.

What is a discouraged worker?

someone who has stopped looking for work because they believe there are no jobs available

What is structural unemployment?

caused by a mismatch between workers' skills and job requirements

What is frictional unemployment?

short-term unemployment caused by workers transitioning between jobs or entering the workforce.

What is cyclical unemployment?

caused by economic downturns in the business cycle.

What is the consumer price index (CPI)?

measures changes in the price level of a basket of consumer goods and services over time.

What is fiscal policy?  

the use of government spending, transfers, or taxes to stabilize the economy.

What is monetary policy?

the central bank’s use of changes in the money supply or interest rates to stabilize the economy.

What are sticky wages?

wages that are slow to fall during high unemployment and slow to rise during labor shortages.

What is equilibrium price?

the price at which the quantity demanded equals the quantity supplied

What is stagflation?

the combination of inflation and stagnating (or falling) aggregate output