AP Microecon quiz 1

Absolute advantage

The advantage held by an individual when producing a good or service if they can make produce more with a given amount of time and resources; contrasted with comparative advantage

Ceteris paribus

Latin phrase meaning “other things equal” that refers to the other things equal assumption —> all relevant factors remain unchanged

Command economy

An economy in which the factors of production are publicly owned and central authority makes production + consumption decisions

Comparative advantage

The advantage heldby an individual if their OC of producing a good or service is lowest among the people who could produe that good or service; contrasted with absolute advantage

Economics

The study of scarcity and choice

Factors of production

The economy’s resources —> land, labor, capital, entrepreneurship

Macroeconomics

The branch of economics that is concerned with the overall ups and downs of the economy

Marginal analysis

The study of the costs + benefits of doing a little bit more of activity vs. a little bit less (how big/how much is the margin if we do more or less?)

Marginal utility (of a good or service)

the change in total utility generated by consuming one additional unit of a good or service (how much happier are people with more?)

Market economy

An economy in which the factors of poduction are priately owned and the deciions of individual producers + consumers largey determine what, how, and for whom to produce (laissez faire)

Microeconomics

The branch of economics that studies how individuals, households, and firms make decisions + how those decisions interact (focuses on more individual level)

Mixed economy

Economy which combines elements of traditional, market, and command economics (all 3 economies mixed)

Opportunity cost

The ral cost of an item: the value of the next best alternative that you must give up in order to get that item (value of 2nd best item/best item you don’t choose)

Principle of diminishing marginal utility

States that each successive unit of a good or service adds less to total utility than does the previous unit

Production Possibilites Curve

Illustrates the necessary trade-offs in an economy that produces only 2 goods; shows the maximum quantity of one good that can be prouced for each possible quantity of another good produced

Scare (scarcity)

When a resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it

Specialization

Situation in which each person specializes in the task that they are good at performing; key source of the gains from trade

Terms of trade

Indicate the rate in which one good can be exchanged for another (terms of exchanging)

Trade off

When you give something up in order to have something else

Traditional economy

Economic system in which production + consumption decisions are based on precedents (tribal-ish)

Utility

A measure of personal satisfaction