AP Gov/Micro Vocabulary

economics

the study of scarcity and choice

individual choice

decisions by individuals about what to do, which necessarily involve decisions about what not to do

economy

a system for coordinating a society’s productive and consumptive activities

market economy

in a ______ _______, the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions

command economy

in a _______ _______, industry is publicly owned and a central authority makes production and consumption decisions

incentives

rewards or punishments that motivate particular choices

property rights

establish ownership and grant individuals the right to trade goods and services with each other

marginal analysis

the study of the costs and benefits of doing a little bit more of an activity versus a little bit less

resource

anything that can be used to produce something else

land

all resources that come from nature, such as minerals, timber, and petroleum

labor

the effort of workers

capital

manufactured goods used to make other goods and services

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

scarce resource

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

oppurtunity cost

the real cost of an item is its ___________ ____; what you must give up in order to get it

microeconomics

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

macroeconomics

the study of the overall ups and downs of the economy

economic aggregates

economic measures that summarize data across many different markets

positive economics

the branch of economic analysis that describes the way the economy ACTUALLY works

normative economics

the branch of economic analysis that makes prescriptions about the way the economy SHOULD work

trade-off

when you give up something in order to have something else

production possibilities curve

a model that illustrates the trade-offs facing an economy that produces only two goods; it shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced

efficient

an economy is _________ if there is no way to make anyone better off without making at least one person worse off

productive efficiency

an economy achieves __________ __________ if it produces at a point on its production possibilities curve

allocative efficiency

an economy achieves __________ __________ if it produces at the point along its production possibilities curve that makes consumers as well off as possible

technology

the technical means for producing goods and services

trade

in a market economy, individuals engage in _____: they provide goods and services to others and receive goods and services in return

gains from trade

there are _____ ____ _____: people can get more of what they want through trade than they could if they tried to be self sufficient

specialization

each person specializes in the task that he or she is good at performing, which causes the increase in output from gains from trade

comparative advantage

an individual has a ___________ _________ in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people

absolute advantage

an individual has an ________ _________ in producing a good or service if he or she can make more of it with a given amount of time and resources

terms of trade

the _____ __ _____ indicate the rate at which one good can be exchanged for another

individual supply curve

illustrates the relationships between quantity supplied and price for an individual producer

input

a good or service that is used to produce another good or service

movement along the supply curve

a change in the quantity supplied of a good arising from a change in the good’s price

change in supply

a shift in the supply curve, which changes the quantity supplied at any given price

law of supply

says that, all other things, being equal, the price and quantity supplied of a good are positively related

supply curve

shows the relationship between the quantity supplied and the price

supply schedule

shows how much of a good or service producers would supply at different prices

quantity supplied

the actual amount of a good or service people are willing to sell at some specific price

individual demand curve

illustrates the relationship between quantity demanded and price for an individual consumer

inferior good

a good where a rise in income decrease the demand for the good

normal good

a good where a rise in income increases the demand for the good

complements

two goods are this if a rise in price of one good leads to a decrease in demand for the other good

substitutes

two goods are this if a rise in the price of one good leads to an increase in demand of the other

movement along the demand curve

a change in the quantity demanded of a good that is the result of a change in that good’s price

change in demand

a shift of the demand curve, which changes the quantity demanded at any given price

law of demand

the higher the price for a good or service, all other things being equal, leads people to demand a smaller quantity of that good or service

demand curve

graphical representation of demand schedule. shows the relationship between quantity demanded and price

quantity demanded

the actual amount of a good or service consumers are willing and able to buy at some specific price

demand schedule

shows how much of a good or service consumers will be willing and able to buy at different prices

supply and demand model

a model of how a competitive market works

competitive market

a market where there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

wedge

the price paid by buyers ends up being higher than that received by sellers

quota rent

the earnings that accrue to the license-holder fro ownership of the right to sell the good

deadweight loss

the value of foregone mutually beneficial transactions

demand price

the price at which consumers will demand a given quantity

supply price

the price at which producers will supply a given quantity

license

gives the owner the right to supply a good or service

quantity control (quota)

an upper limit on the quantity of some good that can be bought/sold

inefficiently high quality

sellers offer high-quality goods at a high price even though buyers would prefer a lower quality at a lower price

inefficient allocation of sales among sellers

those who would be willing to sell the good at the lowest price are not always those who manage to sell it

minimum wage

the legal floor on the hourly wage rate paid for a worker’s labor

black market

a market where goods and services are bought illegally

inefficiently low quality

sellers offer low quality goods at low prices even though buyers are willing and able to purchase high quality, expensive goods

inefficient allocation to customers

people who want the good badly and are willing to pay a high price don’t get it, and those who care little about the good and pay a low price get it

wasted resources

people expend money, effort, and time to cope with shortages caused by the price ceiling

price floor

minimum price buyers are required to pay for a good or service

price controls

legal restrictions on how high or low a market price can go

price ceiling

maximum price sellers are allowed to charge for a good or service

shortage

when the quantity demanded exceeds the quantity supplied - is below equilibrium

surplus

when quantity supplied exceeds quantity demanded - is above equilibrium

equilibrium quantity

the quantity of the good sold at equilibrium price

equilibrium price (market-clearing price)

the price where quantity demanded equals quantity supplied

equilibrium

when and individual would be no better off doing something different