AP Macroeconomics Module 1 Vocabulary

Individual choice

Individuals and firms maximize their personal well-being and/or their profits

Economy

The system of trade and industry by which the wealth of a country or region is made and used

Economics

The study of how people use resources and respond to incentives

Market economy

An economic system in which the production of goods and services is determined by supply and demand

Command market

An economic system where the central government plans and controls all major aspects of production and distribution

Incentives

Any reward, penalty, or cost that motivates a person, business, or government to change their behavior and make specific choices

Marginal analysis

An economic decision making tool that compares the additional benefits derived from an activity and the extra cost incurred by the same activity

Resource

Components used to produce goods or services for consumption or use

Land

The natural resource used in production

Labor

A force of production that refers to the work people do to produce goods and services

Capital

Any money or valuable asset used to start, run, or grow a business to make more money

Entrepreneurship

The act of combining land, labor, a capital to start a new business while taking on financial risk in order to make a profit

Scarce

All resources re limited while human wants and needs are unlimited

Opportunity cost

The potential profit provided by a missed opportunity

Microeconomics

Analyzes the market behavior of individuals and businesses to understand their decision-making processes

Macroeconomics

A field of study that examines the behavior of an economy

Economic aggregates

Individual decisions made by families, companies, and the state

Positive economics

A fact based analysis of what is occurring in an economy

Normative economics

A part of economics that focuses on value judgements, opinions, and what the economy should look like rather than than the hard facts

Business cycle

The alternation between economic downturns and upturns in the macroeconomy

Expansion (also known as recoveries)

Economic upturns in which output and employment are rising

Recessions

Economic downturns in which output and employment are failing

Depression

Very deep and prolonged downturn

Employment

Teh total number of people who are currently working for pay

Unemployment

The total number of people who are actively looking for work but are not currently employed

Labor force

The sum of employment and unemployment

Unemployment rate

The percentage of the labor force that is unemployed

Aggregate output

The economy’s total production of goods and services for a given time period

Inflation

A rise in the overall price level

Deflation

A fall in the overall price level

Price stability

The overall price level is changing only slowly if at all

Economic growth

An increase in the maximum possible output of an economy

Model

Any simplified version of reality that is used to better understand a real life situation

Other things equal assumption (ceteris paribus)

All other relevant factors remain unchanged