AP Macro Section 1 Vocab

economics

study of scarcity and choice

individual choice

decisions about what to do and what not to do

economy

system that coordinates choices about production with choices about consumption

market economy

production and consumption are the product of a decentralized decisions made by multiple firms

resources

anything used to produce something else

factors of production

land, labor, capital, and enterpreneurship

opportunity cost

VALUE of what you must give up when making choices

trade offs

all ALTERNATIVES we give when we choose one thing over another

microeconomics

how individuals make decisions and how they interact (small parts)

macroeconomics

the bigger picture of economics (focuses on economic aggregation)

economic aggregation

economic measures that summarize data from different markets

positive economics

questions that have definite wrong and right (facts)

normative economics

saying how the world should work (judgements)

business cycle

the alterations between economic downturn and upturns

employment

total # of people currently working over 16

unemployment

total # of people who currently do not have a job

labor force

sum of unemployed and employed

output

quantity of goods and services produced

aggregate output

economies total production of goods and services for a given time

inflation

rise in overall price but decrease in income

deflation

fall in the overall price but increase in income

price stability

price is changing either very slow or not at all

economic growth

increase in output over time of an economy

nominal income

amount on your paycheck (net pay)

real income

what nominal income will get you (adjusted for inflation)

production possibility curve model

use this to understand trade-offs; considers an economy that produces only 2 goods

2 sources of economic growth

increase in resources to produce goods + services and growth in technology

marginal analysis

making decisions based on the difference of additional benefit vs. additional cost

efficient economy

uses limited resources to maximize the production of goods

trade

people diving tasks among themselves and people provide a service for one in return

gains from trade

dividing tasks and trading

specialization

focusing on one thing to become an expert on it

comparative advantage

if your opportunity cost is lower for something than someone else

absolute advantage

when a person can produce more of a good than someone else