AP Micro U1 Key Terms

Economics

the social science concerned with production, distribution, and consumption of goods and services. It studies how choices are made to allocate resources to satisfy relatively unlimited wants in a world of scarcity.

Microeconomics

examines the decisions of individual units: households and firms

Macroeconomics

examines economies in aggregate (all added up), so it looks at entire economies

Scarcity

limitation, lack of enough to meet all of societies needs and wants. Our wants often are bigger than our resources, this could be regarding money, time, natural resources, etc. As a result of scarcity, we have to make CHOICES

Scarce factors of production

land, labor and capital, so we have to make choices about how to allocate them.

Opportunity Cost

what we give up to get something else

Explicit costs

direct outlays of payment for things (like the cost of a movie ticket)

Implicit costs

what are you giving up by not taking your next best alternative (the amount of money you could be making instead of attending a movie)

The Production Possibility Curve (or Production Possibility Curve)

the PPC (or PPF) shows the possible combinations of outputs that an economy can produce given its current level of inputs and technology

Absolute advantage

the ability of an individual, firm or country to produce more using the same resources. (This is the same as saying it takes fewer resources to produce the same amount)

Comparative advantage

the ability of an individual, firm or country to produce a good or service at a lower opportunity cost than competitors or trading partners.

Terms of Trade

the rate at which one items is traded for another

Mutually beneficial trade

trade that benefits both parties

Utility

an economics term for total benefits to consumers (total benefits are measured in terms of utility for consumers and as revenue for firms)

Total Net Benefit

the difference between total benefit and total cost

Marginal benefit

The added benefit (utility is the word that we use for consumers) from one more unit of a good or service

Marginal cost

the added opportunity cost of one more unit of a good or service

Maximum Net Benefit

occurs at the quantity where MB = MC