AP Econ- Quiz 1 Terms

economics

The social science concerned with how people and societies use scarce resources to satisfy unlimited wants.

economic perspective

The view that people make choices by comparing benefits and costs.

opportunity cost

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

utility

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

marginal analysis

Comparing the additional benefits and additional costs of a decision.

scientific method

A process of developing and testing explanations using observation, evidence, and experiments.

economic principle

A general statement about economic behavior or relationships.

other-things-equal assumption

The assumption that all other relevant factors remain unchanged.

macroeconomics

The study of the economy as a whole.

aggregate

The total amount of something in an economy.

microeconomics

The study of individual consumers, firms, and markets.

positive economics

The study of economic facts and relationships as they are.

normative economics

The study of what the economy should be based on opinions or value judgments.

economizing problem

The need to make choices because resources are scarce relative to unlimited wants.

budget line

A line showing the combinations of goods a consumer can afford.

economic resources

The resources used to produce goods and services.

capital

Produced resources used to produce other goods and services.

investment

The spending used to create or acquire capital resources.

entrepreneurial ability

The ability to organize resources, make decisions, and take risks to create a business.

factors of production

The resources used to produce goods and services: land, labor, capital, and entrepreneurial ability.

consumer goods

Goods and services used directly by consumers.

capital goods

Produced goods used to produce other goods and services.

production possibilities curve

A curve showing the maximum combinations of two products an economy can produce with its resources.

law of increasing opportunity costs

As production of one good increases, the opportunity cost of producing additional units rises.

economic growth

An increase in an economy's ability to produce goods and services.

economic system

The set of institutions and methods a society uses to allocate resources and produce goods and services.

command system

An economic system in which a central authority makes major economic decisions.

market system

An economic system in which individuals and businesses make decisions through markets.

private property

The right of individuals and businesses to own and use property.

freedom of enterprise

The freedom to start and operate a business.

freedom of choice

The freedom of consumers and businesses to make their own economic decisions.

self-interest

The idea that people make choices that they believe will benefit themselves.

competition

The rivalry among producers or sellers to attract customers.

market

An institution where buyers and sellers exchange goods and services.

specialization

The use of resources to produce a limited range of goods or services.

division of labor

The division of production into separate tasks performed by different workers.

medium of exchange

Something accepted as payment for goods and services.

barter

The direct exchange of one good or service for another.

money

Anything widely accepted as payment for goods and services.

consumer sovereignty

The idea that consumers determine what goods and services are produced through their purchasing choices.

dollar votes

The money consumers spend that signals which products they want produced.

creative destruction

The replacement of old products, businesses, and production methods with new ones.

"invisible hand"

The idea that self-interested actions in competitive markets can promote economic efficiency.

circular flow diagram

A model showing the flow of resources, goods, services, and money between households and businesses.

resource market

A market where households sell resources and businesses buy them.

product market

A market where businesses sell goods and services and households buy them.

functional distribution of income

The distribution of income among the factors of production.

personal distribution of income

The way total income is divided among individual households or people.

durable goods

Goods that last for a relatively long time.

nondurable goods

Goods that are used up relatively quickly.

services

Activities provided to satisfy wants, such as education, transportation, or healthcare.

plant

A physical establishment where production takes place.

firm

An organization that produces goods or services.

industry

A group of firms producing the same or similar products.

sole proprietorship

A business owned and operated by one person.

partnership

A business owned and operated by two or more people.

corporation

A business organization legally separate from its owners.

stock

A financial claim representing ownership in a corporation.

bond

A financial claim representing a loan made to a corporation or government.

limited liability

A legal protection that limits an owner's loss to the amount invested in a business.

principal-agent problem

A conflict that can occur when managers' interests differ from those of the owners.

monopoly

A market structure in which one firm supplies the entire market.

externality

A cost or benefit affecting someone who is not directly involved in a transaction.

negative externalities

Harmful side effects of production or consumption imposed on others.

positive externalities

Benefits of production or consumption received by others.

public goods

Goods that are available to everyone and are difficult to restrict people from using.

free-rider problem

The problem that occurs when people benefit from a good without paying for it.

quasi-public goods

Goods that have some characteristics of both public and private goods.

government purchases

Government spending on goods and services.

transfer payments

Payments made by the government to individuals without receiving goods or services in return.

personal income tax

A tax imposed on individuals' income.

marginal tax rate

The tax rate applied to the next dollar of income.

average tax rate

Total taxes paid divided by total income.

payroll taxes

Taxes imposed on wages to help fund programs such as Social Security and Medicare.

corporate income tax

A tax imposed on the income earned by corporations.

sales and excise taxes

Taxes placed on purchases of goods and services.

property taxes

Taxes imposed on the value of property.