AP Macroeconomics study guide

Efficiency

the condition when marginal benefits equal marginal costs.

Ceteris Paribus

A Latin term meaning "all other things constant" or "nothing else changes"

Production Possibilities Frontier (PPF)

a graph representing the possible combinations of two goods that an economy can produce

Comparative Advantage

The situation where someone can produce a good at a lower opportunity cost than someone else can.

Consumers' Surplus

The difference between the price you paid and the Maximum Price you were willing to pay.

Producers' Surplus

The difference between the price received and the Minimum selling price.

Scarcity

is the condition in which our wants are greater than the limited resources available.

Economics

is the science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.

Good

anything from which individuals receive utility or satisfaction.

Utility

the satisfaction one receives from a good.

Bad

anything which individuals receive disutility or dissatisfaction.

Disutility

the dissatisfaction one receives from a bad.

Land

all natural resources, such as minerals, forests, water, and unimproved land.

Labor

the physical and mental talents people contribute to the production process.

Capital

produced goods that can be used as inputs for further production, such as factories, machinery, tools, computers, and buildings.

Microeconomics

deals with human behavior and choices as they relate to relatively small units.

Macroeconomics

deals with human behavior and choices as they relate to an entire economy

Opportunity Cost

Is the most highly valued opportunity or alternative forfeited when a choice is made.

Marginal Costs

additional costs; the costs connected with consuming an additional unit of a good or undertaking one more unit of an activity.

Marginal Benefits

additional benefits; the benefits connected with consuming an additional unit of a good or undertaking one more unit of an activity.

Decisions made at the margin

decision made by weighing additional (marginal) benefits of a change against the additional (marginal) costs of a change with respect to current conditions.

Buyers prefer lower prices

sellers prefer higher prices