AP Economics: Macroeconomic Section 1- Basic Economic Concepts vocabulary

Economics

the study of scarcity and choice.

Individual choice

decisions by individuals about what to do, which necessarily involve decisions about what not to do.

Economy

a system for coordinating a society's productive and consumptive activities.

Market economy

decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions.

Command economy

industry is publicly owned and a central authority makes production and consumption decisions.

Incentives

rewards or punishments that motivate particular choices.

Property rights

establish ownership and grant individuals the right to trade goods and services with each other.

Marginal analysis

the study of the costs and benefits of doing a little bit more of an activity versus a little bit less.

Resource

anything that can be used to produce something else.

Land

refers to all resources that come from nature, such as minerals, timber and petroleum.

Labor

the effort of workers.

Capital

refers to manufactured goods used to make other goods and services.

Entrepreneurship

describes the efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes.

Scarce

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

Opportunity cost

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

Microeconomics

the study of how people make decisions and how those decisions interact.

Macroeconomics

concerned with the overall ups and downs in the economy.

Economic aggregates

economic measures that summarize data across many different markets.

Positive economics

the branch of economic analysis that describes the way the economy actually works.

Normative economics

makes prescriptions about the way the economy should work.

Business cycle

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

Depression

a very deep and prolonged downturn.

Recession

periods of economic downturns when output and employment are falling.

Expansions

recoveries; periods of economic upturns when output and employment are rising.

Employment

the number of people currently employed in the economy.

Unemployment

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

Unemployment rate

the percentage of the labor force that is unemployed.

Output

the quantity of goods and services produced.

Aggregate output

the economy's total production of goods and services for a given time period.

Inflation

a rising overall price level.

Deflation

a falling overall price level.

Price stability

a state in the economy when aggregate price level is changing only slowly.

Economic growth

an increase in the maximum amount of goods and services an economy can produce.

Model

a simplified representation used to better understand a real-life situation.

Other things equal assumption

all other relevant factors remain unchanged. Also known as ceteris paribus assumption.

Trade-Off

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

Production possibilities curve

illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced.

Efficient

if there is no way to make anyone better off without making at least one person worse off.

Technology

is the technical means for producing goods and services.

Trade

in a market economy individuals engage in this; provide goods and services to others and receive goods and services in return.

Gains from trade

people can get more of what they want through trade than they could if they tried to be self-sufficient.

Specialization

each person specializes in the task that he or she is good at performing.

Comparative advantage

producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people.

Absolute advantage

in producing a good or service if he or she can make more of it with a given amount of time and resources. Having an absolute advantage is not the same thing as having a comparative advantage.