AP Econ Units 1 and 2 Vocab Study Set

Need

Something essential for survival

Want

Something that we desire but that is not necessary for survival

Goods

Physical objects that someone produces

Services

Actions or activities that one person performs for another

Scarcity

The fact that limited amounts of goods and services are available to meet unlimited wants

Economics

The study of how people seek to satisfy their needs and wants by making choices.

Entrepreneurs

People who decide how to combine resources to create new goods and services

Factors of production

The resources used to make all goods and services. Mainly being Land, Labor, and Capital

Land

All natural resources are used to produce goods and services

Labor

The effort people devote to tasks for which they are paid

Capital

Refers to any human-made resource that is used to produce economic goods and services

Physical capital

Human-made objects used to create other goods and services

Human Capital

The knowledge and skills a worker gains through education and experience

Trade-off

The act of giving up one benefit in order to gain another, greater benefit

"guns or butter'

The choice between spending money on military or domestic goods.

Opportunity cost

The most desirable alternative that somebody gives up as a result of a decision

Thinking at the margin

When you decide how much more or less to do

Cost/benefit analysis

The decision-making process

Marginal cost

The extra cost of adding one unit, whether it be sleeping one extra hour or building one extra house

Marginal benefit

The extra benefit of adding the same unit

Production Possibilities Curve

A graph that shows alternative ways to use an economy's productive resources

Production Possibilities Frontier

Shows combinations of the production of both one item and another.

Efficiency

The use of resources in such a way as to maximize the output of goods and services

Underutilization

The use of fewer resources than the economy is capable of using

Law of Increasing Costs

As production shifts from making one item to another, more and more resources are necessary to increase production of the second item.

Economic System

The structure of methods and principles a society uses to produce and distribute goods and services

Factor Payments

The income people receive in return for supplying factors of production, such as land, labor, or capital.

Profit

The amount of money a business receives in excess of its expenses

Safety Net

A set of programs to protect people would face unfavorable economic conditions.

Standard of Living

Level of economic prosperity

Innovation

The process of bringing new methods, products, or ideas into use

Traditional economy

A system that relies on habit, custom, or ritual to answer the three basic economic questions.

Market

Any arrangement that allows buyers and sellers to exchange things

Specialization

The concentration of the productive efforts of individuals and businesses on a limited number of activities

Free market economy

Voluntary exchange in the free market which answers the three basic economic questions

Household

A person or group of people living in a single residence

Firm

An organization that uses resources to produce a product or service, which it then sells

Factor Market

When firms purchase factors of production from households

Product Market

Where households buy the goods and services that firms produce

Adam Smith

Has the idea that competition and our own self-interest actually help to keep the marketplace running

Self-interest

One's own personal gain

Incentive

The hope of reward or fear of penalty that encourages a person to behave in a certain way.

Price competition

When producers compete to offer the lowest price for a good that is identical to a good of another producer.

Non-price Competition

When producers compete by offering higher-quality goods or goods with different features.

Consumer sovereignty

The idea that consumers have the power to decide what gets produced

Centrally planned economy

When a centrally planned bureaucracy decides what items to produce, how to produce them, and who gets them

Command Economies

When a centrally planned bureaucracy decides what items to produce, how to produce them, and who gets them

Socialism

A range of economic and political systems based on the belief that wealth should be evenly distributed throughout society.

Communism

When the central government owns and controls all resources and means of production, and makes all economic decisions.

Authoritarian

When the government limits individual freedoms and requires strict obedience from its citizens.

Laissez-faire

The idea is that the government should not interfere in the marketplace.

Private Property

Property owned by individuals or companies and not by the government or the people as a whole.

Intellectual Property

The government's protection of private property with laws that give individuals control.

Mixed Economy

An economic system that has some market-based elements and some government involvement.

Economic Transition

A period in which a nation moves from one economic system to another

Privitization

Selling enterprises operated by the government to individuals

Profit Motive

Drives individuals and businesses to make decisions that improve their material well-being

Open opportunity

The principle that anyone can compete in the marketplace

legal equality

the idea that everyone has the same legal rights

Private property rights

Gives people the right to control their possessions and use them as they wish.

free contract

Allows people to decide what agreements they want to enter into

Voluntary Exchange

Allows consumers and producers to decide what, when, and how they buy and sell.

Interest group

A private organization that tries to persuade public officials to act in ways that benefit its members

Patriotism

Love of one's country

Eminent Domain

The right of the government to take private property for public use

Public interest

The concerns of society as a whole

Public disclosure laws

Requires companies to give consumers important information about the products or services that they offer.

Macroeconomics

The study of economic behavior and decision-making in a nation's whole economy

Microeconomics

The study of economic behavior and decision-making in small units.

Gross domestic product

The total value of all final goods and services produced in a country in a given year.

Obsolescence

When older products or processes become obsolete

Patent

Gives the inventor of a new product the exclusive right to produce and sell it for 20 years.

Copyright

Grants an author exclusive rights to publish and sell his or her creative works

Work ethic

The idea of committing to the value of hard work, but also caring about the quality of one's work.

Public Good

A shared good or service for which it would be inefficient or impractical to make consumers pay individually and to exclude those who did not pay.

Public Sector

The part of the economy that involves the transactions of the government

Private sector

The part of the economy that involves transactions of individuals and businesses

Infrastructure

The basic facilities that are necessary for a society and economy to function efficiently and grow.

Free rider

Someone who would not be willing to pay for a certain good or service but would get the benefit of it anyway if it were provided as a public good.

Market failure

Describes a specific situation in which the free market does not distribute resources efficiently

Externality

An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

Poverty Threshold

An income level below that which is needed to support families

Welfare

Government aid for the poor

Referendum

Proposed laws submitted directly to the public on spending or other economic issues

Business cycle

alternating pattern of periodic expansion and contraction