Studied by 6 people
from Krugman's Economics for AP®
capital
manufactured goods used to make other goods and services.
command economy
an economy in which industry is publicly owned and a central authority makes production and consumption decisions.
economic aggregates
economic measures that summarize data across many different markets.
economics
the study of scarcity and choice.
economy
a system for coordinating a society's productive and consumptive activities.
entrepreneurship
the efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes.
incentives
rewards or punishments that motivate particular choices.
individual choice
decisions by individuals about what to do, which necessarily involve decisions about what not to do.
labor
the effort of workers.
land
all resources that come from nature, such as minerals, timber, and petroleum.
macroeconomics
the branch of economics that is concerned with the overall ups and downs of the economy.
marginal analysis
the study of the costs and benefits of doing a little bit more of an activity versus a little bit less.
market economy
an economy in which the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions.
microeconomics
the branch of economics that studies how individuals, households, and firms make decisions and how those decisions interact.
normative economics
the branch of economic analysis that makes prescriptions about the way the economy should work.
opportunity cost
the real cost of an item: what you must give up in order to get it.
positive economics
the branch of economic analysis that describes the way the economy actually works.
property rights
establish ownership and grant individuals the right to trade goods and services with each other.
resource
anything that can be used to produce something else.
scarce
in short supply; when a resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it.
aggregate output
the economy's total production of goods and services for a given time period.
business cycle
the alternation between economic downturns, known as recessions, and economic upturns, known as expansions.
deflation
a falling overall price level.
depression
a very deep and prolonged downturn.
economic growth
an increase in the maximum amount of goods and services an economy can produce.
employment
the number of people who are currently working for pay in the economy.
expansion
a period of economic upturn in which output and employment are rising; also referred to as recovery.
inflation
a rising overall price level.
labor force
the number of people who are either actively employed for pay or unemployed and actively looking for work; the sum of employment and unemployment.
model
a simplified representation used to better understand a real-life situation.
other things equal assumption
in the development of a model, the assumption that all other relevant factors remain unchanged; also known as the ceteris paribus assumption.
output
the quantity of goods and services produced.
price stability
when the overall price level is changing only slowly if at all.
recession
a period of economic downturn when output and employment are falling.
unemployment rate
the percentage of the labor force that is unemployed.
unemployment
the number of people who are actively looking for work but aren't currently employed.
allocative efficiency
achieved by an economy if it produces at the point along its production possibilities curve that makes consumers as well off as possible.
efficient
describes a market or economy in which there is no way to make anyone better off without making at least one person worse off.
production possibilities curve
illustrates the trade-offs facing an economy that produces only two goods; shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced.
productive efficiency
achieved by an economy if it produces at a point on its production possibilities curve.
technology
the technical means for producing goods and services.
trade-off
when you give up something in order to have something else.
absolute advantage
the advantage conferred by the ability to produce more of a good or service with a given amount of time and resources; not the same thing as comparative advantage.
comparative advantage
the advantage conferred by an individual if the opportunity cost of producing the good or service is lower for that individual than for other people.
gains from trade
an economic principle that states that people can get more of what they want through trade than they could if they tried to be self-sufficient; this increase in output is due to specialization.
specialization
each person specializes in the task that he or she is good at performing.
terms of trade
indicate the rate at which one good can be exchanged for another.
trade
when individuals provide goods and services to others and receive goods and services in return.
change in demand
a shift of the demand curve, which changes the quantity demanded at any given price.
competitive market
a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold.
complements
two goods (often consumed together) for which a rise in the price of one of the goods leads to a decrease in the demand for the other good.
demand curve
a graphical representation of the demand schedule. It shows the relationship between quantity demanded and price.
demand schedule
shows how much of a good or service consumers will be willing and able to buy at different prices.
individual demand curve
illustrates the relationship between quantity demanded and price for an individual consumer.
inferior good
when a rise in income decreases the demand for a good; usually considered less desirable than more expensive alternatives.
law of demand
the "law" that a higher price for a good or service, other things being equal, leads people to demand a smaller quantity of that good or service.
movement along the demand curve
a change in the quantity demanded of a good that is the result of a change in that good's price.
normal good
when a rise in income increases the demand for a good; most goods are normal goods.
quantity demanded
the actual amount of a good or service consumers are willing and able to buy at some specific price.
substitutes
two goods for which a rise in the price of one of the goods leads to an increase in the demand for the other good.
supply and demand model
a model of how a competitive market works.
change in supply
a shift of the supply curve, which changes the quantity supplied at any given price.
individual supply curve
illustrates the relationship between quantity supplied and price for an individual producer.
input
a good or service that is used to produce another good or service.
law of supply
the "law" that, other things being equal, the price and quantity supplied of a good are positively related.
movement along the supply curve
a change in the quantity supplied of a good arising from a change in the good's price.
quantity supplied
the actual amount of a good or service people are willing to sell at some specific price.
supply curve
shows the relationship between the quantity supplied and the price.
supply schedule
shows how much of a good or service producers would supply at different prices.
equilibrium price (market-clearing price)
the price of a good at which the quantity demanded of that good equals the quantity supplied of that good.
equilibrium quantity
the quantity of a good bought and sold at its equilibrium price.
equilibrium
an economic situation when no individual would be better off doing something different; a competitive market is in equilibrium when the price has moved to a level at which the quantity demanded of goods equals the quantity supplied of that good.
surplus
when the quantity supplied of a good or service exceeds the quantity demanded; occurs when the price is above its equilibrium level and is also known as excess supply.
deadweight loss
the value of foregone mutually beneficial transactions.
demand price
the price of a given quantity at which consumers will demand that quantity.
license
gives its owner the right to supply a good or service; a form of quantity control, as only those who are licensed can supply the good or service.
quantity control (quota)
an upper limit on the quantity of some good that can be bought or sold.
quota rent
the earnings that accrue to the license-holder from ownership of the right to sell the good.
supply price
the price of a given quantity at which producers will supply that quantity.
wedge
the difference between the demand price and the supply price of a good, often created by a quota.
price controls
legal restrictions on how high or low a market price may go; typically take the form of either a price ceiling or a price floor.
black market
a market in which goods or services are bought and sold illegally--either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling.
inefficient allocation of sales among sellers
a form of inefficiency resulting from price floors in which those who would be willing to sell the good at the lowest price are not always those who manage to sell it.
inefficient allocation to consumers
a form of inefficiency often resulting from price ceilings in which people who want a good badly and are willing to pay a high price don't get it, and those who care relatively little about the good and are only willing to pay a relatively low price do get it.
inefficiently high quality
a form of inefficiency resulting from price floors in which sellers offer high-quality goods at a high price, even though buyers would prefer a lower quality at a lower price.
inefficiently low quality
a form of inefficiency resulting from price ceilings in which sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price.
minimum wage
a legal floor on the hourly wage rate paid for a worker's labor.
price ceiling
a maximum price that sellers are allowed to charge for a good or service.
price floor
a minimum price that buyers are required to pay for a good or service.
wasted resources
a form of inefficiency in which people expend money, effort, and time to cope with the shortages caused by the price ceiling or surpluses caused by the price floor.
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