AP microeconmics unit 1

Economics

The study of scarcity and choice
-Example - Economics is about making choices. Everyone make all kinds of choices every day. How much should I spend on gas? What's the best route to work?

Individual choice

decisions by individuals about what to do and what not to do
-Example: Should I work during winter break or take a trip to florida?

Economy

is a system that coordinates choices about production with choices about consumption and distributes goods and services to the people who want them
-Example: The stock market system in the United States.

Market economy

the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions
Example: The U.S has a market economy.

Command economy

In a command economy, industry is publicly owned and a central authority makes production and consumption decisions
Example: East Germany, North Korea, and the former Soviet Union are all examples of command economies.

Incentives

rewards or punishments that motivate particular choices
Example: A rise in the price of any good is an incentive for people to back off from buying it as much as they used to. For a reward it could be praise, bonuses, career advancements, earning extra vacation days, etc for workers.

Property rights

establish ownership and grant individuals the right to trade goods and services with each other
-Example: If a person owns a car and have a title to that car in your name, then the property rights to drive, sell, lend, lease, or scrap that car belongs to that person

marginal analysis

the study of the costs and benefits of doing a little bit more of an activity versus a little bit less
-Example: Studying homework over the weekend instead of practicing soccer.

Resource

anything that can be used to produce something else
-Example: land, labor, etc

land

all resources that comes from nature
-Example: minerals, timber, petroleum

capital

refers to manufactured goods used to make other goods and services
-Example: machinery, buildings, tools, etc

labor

the effort of workers
Example: farmers

Entrepreneurship

the efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes
Example: business makers

scarce

when there's not enough of the resource available to satisfy all the ways a society wants to use it
Example: there are limited supplies of oil and coal

opportunity cost

the value of the next best alternative that you must give up in order to get the item
-Example: If you spend $15 on a icecream, you can't spend that $15 on a pizza

Microeconomics

the study of how households and firms make decisions and how they interact in markets
Example: Should I go to college or get a job after highschool?

Macroeonomics

is concerned with the overall ups and downs of the economy
-Example: How many people are employed in the economy as a whole this year?

economic aggregates

economic measures that summarize data across many different markets
Example: unemployment rate, inflation rate, GDP

Positive economics

the branch of economic analysis that describes the way the economy actually works
Example: Kids go to school at 7 am

normative economics

makes prescriptions about the way the economy should work
Example: Schools should start later in the day

trade off

the act of giving up one benefit in order to gain another, greater benefit
Example: A fisher uses his resources more to catch fish so he can't use those resources to get coconuts, so the trade off is he has fewer coconuts.

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
Example: A curve of coconuts being caught to fish being caught.

efficient

if there is no way to make anyone better off without making at least one person worse off
-Example: If there are students sitting down on the floor when there are desks available this is inefficient because all the resources aren't being used.

productive efficiency

when an economy produces at a point on its production possibilities curve
Example: There are points alongside the ppc.

allocative efficiency

when an economy produces at the point along its production possibilities curve that makes consumers as well off as possible
Example: There are points alongside the ppc but it also shows the consumers are well off.

trade

Exchange of buying/selling of goods and services
-Example: A farmer trading his fish in exchange for coins.

Specialization

each person specializes in the task that he or she is good at performing
-Example: A farmer only fishing because he is good at that task.

absolute advantage

an individual has this advantage in producing a good/service if they can make more with it in a given amount of time and resources
Example: Alex can catch more fish, and gather more coconuts than Kirk

comparative advantage

an individual has this advantage in producing a good/service if the opportunity cost of producing the good/service is lower for that individual than for other people
-Example: Kirk has a comparative advantage is catching fish and Alex has the advantage is catching coconuts.

circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms
Example: How it goes from markets to households/firms

household

people who occupy the same housing unit
-Example: My family we all live in the same household

firm

an organization that uses resources to produce a product, which it then sells
Example: Tesla is a firm

product markets

the marketplace where final goods or services are sold to businesses and the public sector
-Example: Ebay, Farmers market, Supermarket

consumer spending

is the total money spent on final goods and services by individuals and households for personal use and enjoyment in an economy
-Example: haircuts, medical care, plumbing

Factor markets

is a term economists use for all of the resources that businesses use to purchase, rent, or hire what they need in order to produce goods or services.
Example: Labor, land, capital