Unit 1 review- APMACRO

Scarcity

The fundamental problem of economics, arising because people have unlimited wants but resources are limited.

Opportunity Cost

The value of the next best alternative that must be given up when a choice is made.

Production Possibilities Curve (PPC) / Frontier (PPF)

A model that graphically demonstrates scarcity, opportunity cost, and efficiency.

Efficient allocation of resources (PPC)

Points on the curve that indicate efficient use of resources.

Inefficient use of resources (PPC)

Points inside the curve indicating unemployment or underutilization.

Economic Systems

Different ways societies organize to allocate scarce resources.

Traditional Economy

An economy based on custom and historical tradition.

Command Economy

An economic system where a central government makes all economic decisions.

Market Economy

An economy where decisions are made by individuals and firms interacting in markets.

Mixed Economy

An economic system that combines elements of both command and market economies.

Factors of Production

Resources used to produce goods and services.

Land (Factors of Production)

Natural resources used in production, such as raw materials and real estate.

Labor (Factors of Production)

The mental and physical efforts of people used in production.

Capital (Factors of Production)

Human-made resources used to produce other goods and services.

Entrepreneurship

The ability to combine land, labor, and capital to create new products or processes, assuming risks.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a given period.

Law of Demand

States that as the price of a good increases, the quantity demanded decreases, and vice versa.

Demand Curve

A graphical representation of the law of demand, illustrating the quantity demanded at each price point.

Change in Quantity Demanded

A movement along a single demand curve caused only by a change in the product's own price.

Change in Demand

A shift of the entire demand curve caused by changes in factors other than the product's price.

Determinants of Demand

Factors that cause shifts in the demand curve, such as Tastes, Related Goods, Income, Population, and Expectations.

Normal Goods

Goods for which demand increases as consumer income increases.

Inferior Goods

Goods for which demand decreases as consumer income increases.

Substitutes

Goods that can be used in place of another; their price increase leads to more demand for the original good.

Complements

Goods that are consumed together; their price increase leads to less demand for the original good.

Expectations (Demand)

Consumers' beliefs about future prices that can affect current demand.