ap macro unit 1

absolute advantage

absolute advantage

The producer that can produce the most output OR requires the least amount of inputs (resources)

allocate

to distribute

capital

resources that are invested with the expectation of future gain

capital goods

goods that are used in producing other goods

ceteris paribus

all other things held constant

comparative advantage

the producer with the lowest opportunity cost

constant opportunity cost

Resources are easily adaptable for producing either good

consumer goods

created for direct consumption

demand

a consumer's desire and willingness to pay a price for a specific good or service

economics

the study of how society manages scarce resources

elasticity of demand

the sensitivity of the quantity demanded to a change in price

entrepreneurship

ambitious leaders that combine the other factors of production to create goods and services

income effect

states that changes in price affect the purchasing power of a consumer's income

increasing opportunity cost

the opportunity cost of producing additional units of a good rises as society produces more of that good

investment

to spend money to improve business production

labor

any effort a person devotes to a task for which that person is paid

land

natural resources used to produce

Law of Diminishing Marginal Utility

the satisfaction a person gets from using a product will diminish with each additional unit consumed

marginal

additional

marginal analysis

making decisions based on weighing the marginal benefits and costs of that action

per unit opportunity cost

opportunity cost/units gained

production possibilities curve

model that shows alternative ways that an economy can use its scare resources

productivity

measure of efficiency that shows output

scarcity

the imbalance between limited productive resources and unlimited human wants

shifters of demand

1. Tastes and Preferences

2. Number of Consumers

3. Price of Related Goods

4. Income

5. Future Expectations

shifters of supply

1. Prices/availability of inputs (resources)

2. Number of producers

3. Technology

4. Government action (taxes & subsidies)

5. Expectations of future profit

shifters of the PPC

1. change in resource quantity or quality

2. change in technology

3. change in trade

substitution effect

changes in price motivate people to buy relatively cheaper substitute goods

supply

the different quantities of a good that sellers are willing and able to sell (produce) at different prices

utility

satisfaction