AP ECON UNIT 1

CLOUUUTT

Scarcity

Limited Resources can’t satisfy unlimited wants.

Economics

The social science of how people use scarce resources to satisfy wants

Need

Basic requirements for survival

Want

Something desired but not necessary for survival

Factors of Productions

Resources used to make goods/services.

Land

Natural resources

Capital

Tools, Machines, and factories used to produce.

Labor

Human effort, skills and abilities.

Entrepreneur

Risk-takers who combine resources to create products

GPD (Gross Domestic Product)

Dollar value of all final goods/services produced within a country in one year.

Good

Tangible product that’s useful, scarce, and transferable.

Durable good

Good that lasts at least 3 and more years

Nondurable good

Lasts less than three years

Service

Work done for someone

Paradox of value

Some essentials (water) have low prices; some non-essentials (diamonds) have high price

Trade-off

The alternative you give up when making a choice

Opportunity cost

The value of the next best alternative

Free Enterprise Economy

Markets where privately owned businesses/consumers make most WHAT/HOW/FOR WHOM decisions with limited government intervention.

Three Economic Questions

WHAT to produce, HOW to produce, FOR WHOM to produce.

Economic System

The organized way a society answers WHAT, HOW, and FOR WHOM to produce

Traditonal Economy

Ritual, Habit, and Customs determine roles and production

Command Economy

Central authority makes most economic decisions.

Market Economy

Buyers and Sellers decide via supply, demand, and prices

Capitalism

Private Citizens own factors of production to earn profits.

Mixed Economy

Blend of traditional, command, and market elements.

Socialism

Government owns/controls some key resources and provides certain services.

Communism

State/Collective ownership of all productive resources; central planning.

Minimum wage

Lowest legal pay for most workers.

Social Security

Federal disability/retirement program.

Inflation

General rise in prices over time

Fixed Income

Income that doesn’t increase as prices rise.

Economic Equity / Equality

Fairness (Equal pay for equal work, anti-discrimination, truth in advertising, minimum wage.)

Voluntary exchange

Buyers/Sellers trade freely and both expect to gain.

Free enterprise

Capitalism with competition and minimal government interference.

Private property rights

People can own/control their possessions

Profit

Being financially better off at a period’s end than at the start.

Consumer sovereignty

Consumers “vote” with dollars and shape WHAT is produced.

Sole proprietorship

Single person owns a business.

Partnership

Two or more people own a business.

Corporation

Separate legal entity; can own property, contract, sue/be sued.

Unlimited Liability

Owner is inextricable from the business and is personally accountable for the company's liabilities.

Merger

Combine firms into one.

HORIZONTAL merger

Same product / industry

VERTICAL Merger

Different production / marketing stages.

Multinational Corporation

Operates in multiple countries, moves resources / capital across borders.