ap econ whole semester reading

Economics

The study of how people deal with scarcity and make choices with limited resources.

Scarcity

A situation where there are unlimited wants but limited resources, leading to choices that must be made.

Opportunity Cost

The value of the best alternative that is given up when making a choice; the cost of a positive alternative not chosen.

Market

An arrangement where buyers and sellers can interact and exchange goods and services.

Production Possibilities Curve (PPC) / Production Possibilities Frontier (PPF)

A graph that represents trade-offs, choices, scarcity, and opportunity costs in the production of two goods.

Increasing Opportunity Costs

The principle that producing more of one good requires progressively larger reductions in the quantity of another good.

Comparative Advantage

When an individual, business, or country can produce a good more efficiently and with a lower opportunity cost than another.

Absolute Advantage

The ability of a person, business, or country to produce more of a good than another individual or entity.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal,' used in economics to isolate the effect of one variable.

Laissez Faire

A principle of minimal government intervention in the economy, where competition is promoted and restrictions on trade are reduced.

Normal Goods

Goods for which demand increases as consumer income rises and decreases when income falls.

Inferior Goods

Goods for which demand increases when consumer income falls and decreases when income rises.

Substitutes

Goods that can replace each other; an increase in the price of one leads to an increase in demand for the other.

Complementary Goods

Goods that are consumed together; an increase in the price of one leads to a decrease in demand for the other.

Shifts in Demand Curve

Changes in consumer preferences, incomes, prices of related goods, or expectations that affect the entire demand for a good.

Shortage

A situation in which the quantity demanded exceeds the quantity supplied at a given price.

Surplus

A situation where the quantity supplied exceeds the quantity demanded at a given price.

Equilibrium Price

The price at which the quantity supplied equals the quantity demanded in a market.

Fiscal Policy

Government spending and taxation decisions aimed at influencing economic conditions, particularly aggregate demand.

Monetary Policy

Actions taken by a central bank to control the money supply, interest rates, and inflation.

Real GDP

Gross domestic product adjusted for changes in the price level; it reflects the value of all new goods and services produced in an economy.

Velocity of Money

The rate at which money is exchanged in an economy; it calculates how fast money circulates.

Business Cycles

Fluctuations in economic growth measured by changes in real GDP over time, including phases like expansion and recession.

Natural Unemployment Rate

The unemployment rate that exists when the economy is at full employment, typically around 3-5%.

Crowding Out

The phenomenon where increased government spending leads to a decrease in private spending and investment.

Sticky Prices

Prices that do not adjust immediately to changes in economic conditions, which can lead to imbalances in supply and demand.

Demand-Pull Inflation

Inflation that occurs when demand for goods and services exceeds supply, driving prices up.

Cost-Push Inflation

Inflation caused by an increase in the cost of production inputs, leading to higher prices for goods.

Interest Rate

The cost of borrowing money, often expressed as a percentage of the loan amount.

Federal Funds Rate

The interest rate at which banks lend reserves to each other overnight; it is a key tool of monetary policy.

Aggregate Demand

The total demand for all goods and services in an economy at a given overall price level and in a given time period.

Aggregate Supply

The total supply of goods and services that firms are willing and able to produce in the economy at a given overall price level.