AP Econ Vocab

Positive Economics

Economic statements that are testable through empirical evidence.

Normative Economics

Subjective opinions that cannot be proven true or false.

Product Market

“Place” where goods and services produced by businesses are sold to households.

Resource (Factor) Market

“Place” where resources (land, labor, capital, entrepreneurship) are sold to businesses.

Economics

The science of scarcity - the study of choices.

Scarcity

The limitedness of resources - unlimited wants, limited resources - forces us to make choices.

Microeconomics (mostly US)

Study of small economic units such as individuals, firms, and markets - how they work/coexist

Macroeconomics (US and Global)

Study of large economy as a whole - more headline and government stuff

Tradeoff

The entire list of alternatives to a decision

ALL decisions involve trade-offs

Opportunity Cost

Most desirable alternative given up when you make a choice

Price

Amount buyer/consumer pays (consumer perspective)

Cost

Amount seller pays to produce a good (producer perspective)

Investment

The money spent by businesses to improve their production

Consumer Goods

Created for direct consumption (ex: pizza)

Capital Goods

Created for indirect consumptions (ex: oven)

5 Key Economic Assumptions:

1. Society has unlimited wants and limited resources (scarcity exists)

2. Due to scarcity, choices must be made. Every choice has a cost (a tradeoff)

3. Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self interest” (rational actors)

4. Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice (cost/benefit analysis)

5. Real-life situations can be explained and analyzed through simplified models and graphs (makes easier to understand with a tradeoff of absolute accuracy)

4 Factors of Production

1. Land - All natural resources used to produce goods and services

2. Labor - Effort a person devotes to a task for which that person is paid

3. Capital - Physical: human made resources used to create other goods and services. Human: skills or knowledge gained by a worker through education and experience.

4. Entrepreneurship - Ambitious leaders that combine the other factors of production to create goods and services.