AP Macroeconomics Unit 1 Vocab

economics

the study of how individuals, businesses, and societies allocate their finite resources to satisfy transcending wants and needs

scarcity

fundamental economic problem facing all societies that results from a combination of scarce resources and people's virtually unlimited wants

economy

a system that organizes and manages a society's limited resources in a effort to produce, distribute, and consume goods and services

economic resource

any input uses in the production of goods and services which includes land, labor, capital, and entrepreneurship

factors of production

Land, labor, and capital; the three groups of economic resources that are used to make all goods and services

land

all natural resources like minerals, forests, and agricultural land used to produce goods and services

labor

Human effort, both physical and mental, directed toward producing goods and services

capital

Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; separated into human capital (skill, education) and physical capital (tools you can touch and operate)

entrepreneurship

the process of bringing together land, labor, and capital to create and operate a business, taking on risks for potential profits

efficiency

using resources optimally to maximize production and achieve the highest possible satisfaction of wants and needs

inefficiency

suboptimal use of resources, resulting in lower production or satisfaction

opportunity cost

the value of the next best alternative forgone after a decision has been made

tradeoffs

the sacrifices made when choosing one option over another due to limited resources

underutilized resources

resources not fully employed in the production process

economic growth

an increase in a nation's output of goods and services over time

economic model

a simplified representation of economic relationships or systems used to analyze and understand real-world situations

ceteris paribus

an assumption that all other relevant factors remain constant when analyzing the impact of one variable

productivity

the efficiency which resources are utilized to produce goods and services at some point in time; the ratio of output to input, or the amount of goods and services produced per unit of resource

technology

the application of scientific knowledge and methods to the production process

trade

the exchange of goods and services in a market of multiple parties

capital stock

the total amount of physical capital available in an economy

accumulation

the process of increasing the stock of capital over time

specialization

concentrating on specific tasks or activities within an economy to increase efficiency

gains from trade

the benefits that both individuals or nations realize from mutually beneficial exchange of the products of certain goods and services

terms of trade

the agreed-upon conditions for exchange between exports and imports

absolute advantage

the ability to produce a good using fewer inputs or with better efficiency than another producer

Comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

competitive market

a relationship between supply and demand with many buyers and sellers with neither singular party having a strong influence on market price

supply and demand model

a framework explains how prices and quantities of goods are determined in a competitive market

law of demand

the inverse relationship between the price of good and the quantity demanded

price

The amount of money or other considerations exchanged for a good or service

quantity demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

demand curve

a graph of the relationship between the price of a good and the quantity demanded

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

shift in demand

when a change in some economic factor (other than price) causes a different quantity to be demanded at every price

determinants of demand

Factors other than price that determine the quantities demanded of a good or service such as income, presences, and prices of related goods

complementary good/service

a product that is used together with another good or service

substitute good/service

a product or service that consumers see as essentially the same or similar-enough to another product

normal good

a good that consumers demand more of when their incomes increase

inferior good

a good that consumers demand less of when their incomes increase

law of supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises (direct relationship)

quantity supplied

the amount a supplier is willing and able to supply at a certain price

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

supply curve

a graph of the relationship between the price of a good and the quantity supplied

movement along the supply curve

a change in the quantity supplied of a good arising from a change in the good's price

shift in supply

when a change in some economic factor (other than price) causes a different quantity to be supplied at every price

determinants of supply

resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of sellers in the market that change the supply (other than product price)

equilibrium

the point where the quantity demanded equals the quantity supplied

equilibrium price

the price at which the quantity demanded equals the quantity supplied

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

surplus

the excess of quantity supplied over quantity demanded at a given price

shortage

the excess of quantity demanded over quantity supplied at a given price

indeterminate quantity

a situation where the quantity of a good or service cannot be determined; the effect of a change in demand or supply on the quantity is unclear, because the magnitude of the change in demand or supply is unknown or unequal to the magnitude of the change in the other variable

indeterminate price

a situation where the price of a good or service cannot be determined; the effect of a change in demand or supply on the price is unclear, because the direction of the change in demand or supply is opposite to the direction of the change in the other variable