AP Microeconomics Chapter 1

economics

the study of how people choose to use resources to obtain the goods and services they want

scarcity

the gap between limited resources and nearly unlimited desires or wants

constraint

when you can't do something because you lack funds or time

Opportunity Cost

a loss of the benefit that would have been gained from choosing the alternative

economists

use models and data to explain why people, businesses, and governments make the choices they do

Microeconomics

the examination of how economic forces affect individual parts of the economy. focuses on decisions by you, your family, workers in your community

Macroeconomics

The study of how the economy as a whole works and is affected.

goods and services

the objects (goods) and the actions (services) that people value and produce to satisfy human wants

Consumer

anyone who buys goods and services

consumption

the act of buying goods and services

economic resources (factors of production)

land, labor, and capitol

land

all natural resources that the earth provides and that humans use to make goods are refferend to as land

labor (human resources) (human capital) (the workforce)

the people who create goods and services

capital

the tools, machines, buildings, and factories used to make goods or services

human capital

the knowledge, skills, abilities, experiences, and creativity that help people maintain and increase thier productivity.

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

the branch of economic analysis that describes the way the economy actually works without making judgements

theory

a general statement of cause and effect or action and reaction

model

a formal statement of theory, descriptions of the relationship between two or more variables

Ockham's Razor

the principle that irrelevant detail should be cut away

Variable

A factor that can change in an experiment

The post hoc fallacy

false assumption that because one event occurred before another event, it must have caused that event

Fallacy of Composition

the incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the whole

rival nature

only one person can consume a product at a time.

non-rival nature

The product can be used by multiple people or businesses at the same time

3 economic system questions

What to produce, how to produce, and for whom to produce?

traditional economy

An economic system based on customs and traditions, often relying on barter and subsistence farming.

command economy

An economic system where the government makes all decisions regarding the production and allocation of goods and services, often controlling resources and industries.

market economy

An economic system where decisions regarding investment, production, and distribution are driven by supply and demand, typically with minimal government intervention.

mixed economy

An economic system that combines elements of both market and command economies, balancing private enterprise with government regulation and intervention.