AP Microeconomics Chapter 1 Key Term Notecards
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41 Terms
economics
the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity
scarcity
opportunity cost
scientific method
The procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.
economic principle
ceteris paribus
economic perspective
a viewpoint that envisions individuals and insitutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.
opportunity cost
utility
economic principle
a widely accepted generalization about the economic behavior of individuals or institutions
ceteris paribus (other things equal assumption)
the assumption that factors other than those being considered are held constant
scientific method
demand and supply analysis
scarcity
the basic economic problem that unlimited wants exceed limited resources
opportunity costs
factors of production
opportunity cost
the amount of other products that must be forgone or sacrificed to produce a unit of a given product
scarcity
product market
economic resources
the land, labor, capital, and entrepreneurial ability that are used to produce goods and services.
factors of production
resource market
land
any and all natural resources (“free gifts of nature”) that are used to produce goods and services
factors of production
resource market
labor
any mental or physical exertion on the part of a human being that is used in the production of a good or service
factors of production
human capital
capital (or physical Capital)
man-made physical objects (factories, roads) and intangible ideas (the recipe for cement) that do not directly satisfy human wants but which help to produce goods and services.
investment
factors of production
consumer goods
products and services that satisfy human wants directly
capital
product market
investment (investment goods)
expenditures that increase the volume of physical capital (roads, factories, wireless networks) and intangible ideas (formulas, processes, algorithms) that help to produce goods and services
not to be confused with financial investment
capital
economic system
entrepreneurship (entreprenuerial activity)
the human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production of existing products
entrepreneur
factors of production
entrepreneurs
individuals who provide entrepreneurial ability to firms by setting strat, advancing innovations, and bearing the financial risk if their firms do poorly
self-interest
entrepreneurship
factors of production
the four economic resources: land, labor, capital, and entrepreneurial ability
economic resources
circular flow diagram
microeconomics
the part of economics concerned with
decision making by individual units such as a household, a firm, or an industry
individual markets, specific goods and services, and product and resource prices
product market
economics
macroeconomics
the part of economics concerned with the performance and behavior of the economy as a whole
it focuses on economic growth, the business cycle, interest rates, inflation, and the behavior of major economic aggregates such as the household, business, and gov sectors
households
business/firms
normative economics
the part of economics involving value judgments about what the economy should be like
focused on which economic goals and policies should be implemented
policy economics
positive economics
economic perspective
positive economics
the analysis of facts or data to establish scientific generalizations about economic behavior
scientific method
normative economics
economic system
a particular set of insitutiona arrangements and a coordinating mechanism for solving the economizing problem
a method of organizing the economy, of which the market system and the command system are the 2 general types
markets
market system
laissez-faire capitalism (pure capitalism)
a hypothetical economic system in which the gov’s economic role is limited to protecting private property and establishing a legal env appropriate to the operation of markets in which only mutually agreeable transactions take place between buyers and sellers
private property
self interest
command system
a method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities
socialism
communism
market system
economic system
market system
an economic system in which individuals own most economic resources and in which markets and prices serve as the dominant coordinating mechanism used to allocate those resources; capitalism
all the product and resource markets of a market economy and the relationships among them
laissez-faire capitalism
circular flow diagram
markets
any institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a particular good or service
product market
resource market
private property
the right of private person and firms to obtain, own, control, employ, dispose of, and bequeath land, capitol, and other property
market system
business/firms
self-interest
that which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain
private property
consumer goods
competition
the effort and striving between two or more independent rivals to secure the business of one or more third parties by offering the best possible
market system
laissez-faire capitalism
specialization
the use of the resources of an individual, a firm, a region, or a nation to concentrate production on one or a small number of goods and services
labor
division of labor
division of labor
the separation of the work required to produce a product into a number of different tasks that are performed by different workers
specialization of workers
specialization
competition
circular flow diagram
an illustration showing the flow of resources from households to firms and of products from firms to households
these flows are accompanied by reverse flows of money from firms to households and from households to firms
households
business/firms
households
economic entities (of one or more persons occupying a housing unit) that provide resources to the economy and use the income received to purchase goods and services that satisfy economic wants
circular flow diagram
business/firms
business/firms
economic entities (firms) that purchase resources and provide goods and services to the economy
circular flow diagram
factors of production
product market
a market in which products are sold by firms and bought by households
resource market
consumer goods
resource market
a market in which households sell and firms buy resources or the services of resources
post hoc fallacy (“after this, therefore, because of this” fallacy)
the logical error of assuming that because Event B follows Event A, Event A must have caused Event B
scientific method
correlation but not causation
graph
a visual representation of the relationship between two economic quantities, or variables
direct relationship
the relationship between 2 variables that change in the same direction
for ex., produce price and quantity supplied
a positive relationship
inverse relationship
graph
inverse relationship
the relationship between 2 variables that change in opposite directions
for ex., produce price and quantity demanded
a negative relationship
positive relationship
graph
dependent variable
a variable that changes as a consequence of a change in some other (independent) variable
the “effect” or outcome
independent variable
graph
independent variable
the variable causing a change in some other (dependent) variable
dependent variable
graph
