AP Microeconomics Chapter 1

theories, principles, and models are “…”

purposeful simplifications

principles are …

generalizations of tendencies

theories are made under the assumption of…

ceteris paribus

‘ceteris paribus’ means

all other things equal

when a t, p, or m is made under ceteris peribus, what is assumed?

only the considered factors are changing

microeconomics studies

individual decision-making and behavior

macroeconomics studies

growth and changes in the economy as a whole

economics studies

choices made under conditions of scarcity

the economic perspective

1) scarcity and choice, 2) purposeful (rational) behavior, 3) marginal analysis

what is an opportunity cost?

the cost of the next-best item that’s given up by making a choice

positive economics is based on…

facts & cause and effect relationships

normative economics is based on…

subjective, value-based judgements

predictions are inherently examples of ___ economics

normative

the individual’s economizing problem

needing to make choices because economic wants exceed economic means

budget lines

various combinations of products one can purchase with a limited income

all combinations ABOVE the line are…

unattainable

all combinations BELOW or ON the PPC are…

attainable

marginal benefits

the additional benefits of a choice

marginal costs

the additional costs of a choice

economic resources

land, labor, capital, entrepreneurial ability

production possibilities model demonstrates

society’s economizing problem

a full economy must sacrifice ____ to get another because of ____

one good, scarce resources

a straight budget line implies a ____ opportunity cost

constant

a curved PPM line implies an ___ opportunity cost

increasing

the law of increasing opportunity costs

the opportunity cost of producing each unit of one good is greater than the opportunity cost of producing the previous unit

any economic activity should be expanded as long as ___ exceed ___

marginal benefits, marginal costs

resources are fully allocated when MB _ MC

=

unemployment is represented as

points inside the PPM curve

if a society minimizes their present goods, they ___ their future goods

maximize

if a society maximizes their present goods, they ___ their future goods

minimize

scarcity arises because

limited resources, unlimited wants

a production possibilities curve demonstrates

the combinations of two goods that can be produced with all available resources

comparative advantage is

a country specializing in producing the good for which it has the lowest opportunity cost

absolute advantage is

a country producing more of a good or service with the same amount (or fewer) compared to others

marginal analysis compares

marginal benefits and marginal costs