AP Econ Module 1-4 Notes: Key Concepts (VOCABULARY)

Vocabulary-style flashcards covering core microeconomics concepts from the notes: trade-offs, opportunity cost, rational choice at the margin, PPC shapes and interpretations, supply/demand basics, and market equilibrium.

Trade-offs

A situation in which to obtain one good or benefit you must give up something else.

Opportunity cost

The real cost of a choice, measured by the value of the next best alternative forgone.

Rational people think at the margin

Decisions are made by comparing marginal benefits and marginal costs.

Marginal benefit

The additional benefit received from consuming or producing one more unit.

Marginal cost

The additional cost incurred from producing or consuming one more unit.

Incentives

Factors that motivate decisions by changing costs or benefits.

Production Possibilities Curve (PPC)

A curve showing the maximum feasible combinations of two goods that can be produced with available resources and technology.

Efficient (on the PPC)

A point on the PPC where resources are fully utilized to produce the maximum possible output.

Inefficient (inside the PPC)

A point inside the PPC where resources are underutilized.

Unattainable (outside the PPC)

A point outside the PPC that cannot be produced with current resources and technology.

Straight-line PPC

A PPC with constant opportunity costs; the trade-off between the two goods is linear.

Bowed-outward PPC

A PPC with increasing opportunity costs; the curve bows outward.

Supply

The quantity of a good that producers are willing to offer for sale at various prices.

Demand

The quantity of a good that buyers are willing to purchase at varying prices.

Law of Demand

As price falls, quantity demanded rises; as price rises, quantity demanded falls.

Law of Supply

As price rises, quantity supplied rises; as price falls, quantity supplied falls.

Market Equilibrium

The price and quantity at which quantity supplied equals quantity demanded; the market clears.

Surplus

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

Shortage

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

Equilibrium Price

The price at which Qd equals Qs.

Move along the PPC

Changing the allocation between two goods with fixed resources and technology; the slope indicates the opportunity cost.