AP MICRO BEC - basic economic concepts

A comprehensive collection of vocabulary terms covering introductory economics, including micro and macro concepts, economic systems, trade factors, and market models.

Economics

the study of how society allocates its scarce resources.

Microeconomics

the study of how households and firms make decisions and how they interact in markets.

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Scarcity

the limited nature of society's resources.

Trade-offs

The reality of scarce resources implies that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs.

Opportunity Costs

the value of the sacrifice made to pursue a course of action.

Factors of Production

These are the inputs used to produce goods and services.

Land

considered to be the natural resources or 'gifts of nature' not created by human effort.

Labor

viewed as people with all their abilities and efforts.

Capital

the equipment and structures used to produce goods and services.

Entrepreneur

An entrepreneur is a risk-taking individual in search of profit who coordinates the other three factors of production.

Marginal Analysis

the process of making decisions based upon weighing the marginal benefits and costs of that action.

Marginal Cost

the additional cost of producing one more unit.

Marginal Benefit

the additional benefit received from the consumption of the next unit of a good or service.

Specialization

the production of goods, or performance of tasks, based upon comparative advantage.

Voluntary Exchange

the act of buyers and sellers freely and willingly engaging in market transactions.

Division of Labor

the division of work into a number of separate tasks to be performed by different workers.

Command Economy

an economic system characterized by a central authority that makes most of the major economic decisions.

Market Economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.

Traditional Economy

an economic system in which the allocation of scarce resources and other economic activity is the result of ritual, habit, or custom.

Mixed Economy

a type of economic system where people carry on their economic affairs with some government involvement.

Consumer Sovereignty

The belief that the consumer is the ruler of the market when determining the types of goods and services produced.

Profit Motive

the driving force that encourages people and organizations to improve their material well-being.

Economic Freedom

The broad economic goal that promotes people having the ability to make their own economic decisions.

Economic Security

The broad economic goal that promotes protection from adverse economic events.

Economic Equity

The broad economic goal that promotes the concept or idea of fairness in the economy.

Economic Growth

The broad economic goal that promotes the ability of an economy to increase production capabilities.

Economic Efficiency

The broad economic goal that seeks to ensure that decisions are made so that benefits are greater than costs.

Economic Stability (Price Stability)

a broad economic goal that seeks an absence of excessive fluctuations in the macroeconomy.

Standard of Living

This is the quality of life, based on ownership of necessities and luxuries that make life easier.

Human Capital

the accumulation of investments in people, such as education and on-the-job training.

Absolute Advantage

the ability to produce more of a good than all other producers.

Comparative Advantage

the ability to produce a good at a lower opportunity cost than all other producers.

Free Trade

the unrestricted trade between people and nations.'

Trade Barrier

an impediment to the flow of goods/services/capital across international boundaries.

Tariff

a tax on goods produced abroad and sold domestically.

Quota

a maximum amount of a good that can be imported into the domestic market.

Embargo

the prohibition on the export or import of a product.

Factor Market

market in which the factors of production are bought and sold.

Product Market

market in which finished goods and services are bought and sold.

Circular Flow Model

model that shows how households and firms circulate resources, goods, and income through the economy.