AP Macroeconomics Unit 1 Flashcards

Economics

The study of scarcity and choice

Trade-off

When you give up something to get something else

Resource or Factor of Production

Anything that can be used to produce something else

Land

Refers to all resources that come from nature, such as timber, wind, and petroleum

Labor

The effort of workers

Capital

Manufactured goods used to make other goods and services (eg. buildings, machinery, tools)

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

Scarcity

When something is desired in quantities that are beyond the available supply

Opportunity cost

The value of the next best alternative that you must give up in order to get the item

Microeconomics

The study of how individuals, households, and firms make decisions and how those decisions interact

Household

A person or group of people who share their income

Firm

Any organization that produces goods or services for sale

Macroeconomics

The study of the overall ups and downs of the economy

Positive

Deal with indisputable facts or predictions

Normative

Deals with debatable or subjective statements

Model

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

Other things equal assumption

Means that all other relevant factors remain unchanged. This is also known as the ceteris paribus assumption

Production possibilities curve

Illustrates the necessary trade-offs in an economy that produces only two goods. It shows the maximum quantity of one good that can be produces for each possible quantity of the other good produced.

Efficient

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

Y-intercept of PPC

The maximum number of goods on the y-axis that can be produced (no x good is produced)

X intercept of PPC

The maximum number of goods on the x-axis that can be produced (no y good is produced)

Point inside the PPC

Inefficient use of resources (feasible, but not preferable)

Point outside the PPC

Unfeasible level of production

Slope of PPC

The opportunity cost of the good measured on the x axis in terms of the good measured on the y axis.

Straight-line (linear) PPC

Opportunity cost of one unit of a good does not change with how much of the other good is produced. There is no specialization of resources

Concave (bowed-out) PPC

Depicts increasing opportunity costs. There is specialization or resources

Economic growth

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

Economic growth on the PPC

Results in an outward shift of the PPC (can produce more of everything)

Two ways economic growth occurs:

1. An increase in the availability of resources used to produce goods and services

2. Improved technology. This only affects resources specific to the improved technology; resources which are not affected by the technology will be shifted outwards less

Technology

The technical means for producing goods and services

Shrinking economy on the PPC

Results in an inward shift of the PPC

Trade

Providing goods and services to others and receiving goods and services in return

Specialization

Each person specializes in the task that they are good at performing

Comparative advantage

When a person’s opportunity cost in producing a good is the lowest among the people who could produce the good or service

Absolute advantage

When a person' can make more of the good or service with a given amount of time and resources

Terms of trade

Indicates the rate at which one good can be exchanged for another. To find it, pick any number between the opportunity cost of the producer and that of the buyer.