Chapter 1 AP macro vocab

Absolute advantage

the advantage con-ferred 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.

Business Cycle

the short-run alterna-tion between economic downturns, known as recessions, and economic upturns, known as expansions.

Capital goods

any tangible asset used by a business to produce goods or services for consumer goods or for use by other businesses

Centrally planned economy (command)

an economic system where a government body makes economic decisions regarding the production and distribution of goods.

Comparative advantage

the advantage conferred if the opportunity cost of producing the good or service is lower for another producer.

Consumer goods

products used for immediate consumption

Economics

the study of scarcity and choice.

Economic growth

an increase in the maximum amount of goods and serv- ices an economy can produce.

factors of demand

Determinants are factors that can cause the entire demand curve to increase or decrease (shift to the right or shift to the left). When there is an increase in demand (see graph below), the demand curve will shift right. At every price level, there is an increase in the quantity demanded.

Factors of production

the inputs used to produce a good or service in order to produce income

Free-market economy (capitalism)

one without government intervention or regulation

inferior good

a good for which a rise in income decreases the demand for the good.

inflation

a rise in the overall price level.

law of demand

the principle that a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service.

law of increasing opportunity costs

an economic principle that describes how opportunity costs increase as resources are applied.

law of supply

other things being equal, the price and quantity supplied of a good are positively related.

Macroeconomics

to an economic system as a whole the branch of economics that is concerned with the overall ups and downs in the economy.

market equilibrium

a condition in a market where the quantity supplied equals the quantity demanded at an optimal price level

Microeconomics

the branch of econom- ics that studies how people make deci- sions and how those decisions inter- act.

Mixed economy

a system that combines aspects of both capitalism and socialism.

normal good

a good for which a rise in income increases the demand for that good—the “normal” case.

Opportunity costs

the real cost of an item: what you must give up in order to get it.

price ceiling

the maximum price sellers are allowed to charge for a good or service; a form of price control.

price floor

the minimum price buyers are required to pay for a good or serv- ice; a form of price control.

production possibilities curve (frontier)

illus- trates the trade-offs facing an econo- my 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.

recession

a period of economic down- turn when output and unemployment are falling; also referred to as a con- traction.

Scarcity

the basic problem in economics in which society does not have enough resources to produce whatever everyone needs and wants

Shortage

the insufficiency of a good or service that occurs when the quan- tity demanded exceeds the quantity sup- plied; shortages occur when the price is below the equilibrium price.

Specilization

a situation in which different people each engage in the different task that he or she is good at performing.

surplus

the excess of a good or service that occurs when the quantity supplied exceeds the quantity demanded; sur- pluses occur when the price is above the equilibrium price.

Trade-Off

when you give up something in order to have something else.

Traditional Economy

a system where goods production and distribution are driven by time-honored beliefs, customs, culture, and traditions

unemployment

the total number of people who are actively looking for work but aren’t currently employed.