ap economics: module 1 terms

factors of production

our economy's resources:

• land (natural resources)

• labor (workers and their efforts)

• capital (manufactured goods used to make g/s)

• entrepreneurship (innovation, organization, risk-taking, etc.)

command economy

opposite of market economy, central decision making by an authority (usually govt.).

• ex: USSR and North Korea

• publicly owned

market economy

decentralized decision making.

• indiv. producers consider the 3 economic questions to make the most profit

• indiv. consumers choose what they want

• there's little govt. involvement

• privately owned firms

• ex: U.S.

property rights

establish ownerships and allow indivs. to trade g/s.

• they also create incentives

economic aggregates

economic measures that summarize data over many big markets.

• ex: unemployment rate, inflation rate, GDP

• a focus of macroeconomics

economy

a system that coordinates production and consumption choices by creating and distributing g/s

marginal analysis

studies marginal decisions to determine how much of an activity we should do.

• compares the costs/benefits of doing more/less of something

marginal decisions

decisions concerning what to do with the next/additional unit of something by analyzing trade-offs (comparing MB and MC)

predict vs. prescribe

predict: positive, outcome.

prescribe: normative, outcome = good or bad

scarcity

not enough of a resource to satisfy needs and wants.

• it leads to making choices as a whole and allowing the right chocie to emerge as a result of many indiv. choices

opportunity costs

the cost of an item/the value of the forgone (given up) next best alternative due to making a choice.

• these don't have to be money-related, it can also be related to time and opportunities

why do we make decisions?

unlimited wants and limited resources

reasons for disagreement between economists

1. values

2. how they conduct e.a (diff. simplifying assumptions and focuses)

normative economics

type of e.a. that makes prescriptions on how the economy should work (assumptions, opinions)

positive economics

type of e.a. that describes how the economy actually works.

• questions brought up have definite r/w answers (facts)

economic models

representations of reality (graphs, equations) that help form predictions to "what if" questions

economics

the study of scarcity and choice

interaction

our decisions are shaped by those of others (and vice-versa)

MB and MC equations

MB > MC = continue activity

MC > MB = stop activity

macroeconomics

studies how economy-wide interactions affect the economy as a whole (overall ups and downs)

microeconomics

studies how individual choices made by indivs., firms, and households interact to build up our economy

why do command economies fail?

lack of materials, demand, necessities, and incentives (can't change behavior with no incentive)

individual choice

the basic level of economics that deals with the choices individuals make (what to do, what not to do)

e.a. is based on…

common principles

what incentives do property rights create?

produce valuable things to keep/trade and utilize resources to their best advantage

resource

anything that's used to make something else

all costs are…

opportunity costs

3 economic questions

what, how, and for whom to produce?

due to an always changing economy...

older approaches become invalid, new questions arise, and new issues are there to be disputed

disputes can be solved through...

evidence (which can take time)

marginal cost

cost of doing something one more time

marginal benefit

benefit of doing something one more time

incentives

rewards or punishments used to motivate specific choices/behavior