AP MACRO 1.1-1.3

Scarcity

unlimited wants exceed the limited resources available to fulfill those wants

PPC (Production Possibilities Curve)

a model that shows alternative ways that an economy can use its scarce resources; graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency (shows trade-offs)

Trade-off

ALL of the alternative that we sacrifice when we make a decision

Opportunity Cost

cost of the most desirable alternative when one choice is made rather than another

Full Employment

employment level when there is no cyclical unemployment

Economic Resources

the means through which goods and services are produced

Land

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

Labor

human effort directed toward producing goods and services

Physical Capital

all human-made goods that are used to produce other goods and services; tools and buildings

Human Capital

the skills and knowledge gained by a worker through education and experience

Entrepreneurs

ambitious leaders that combine the other factors of production to create goods and services; take the initiative, innovative, and act as risk bearers

Inefficiency

getting less output from inputs that, if devoted to some other activity, would produce more output

Efficiency

all resources are being used to the highest capacity for the greatest output

Economic Growth

an increase in the maximum possible output of an economy (results in an outward shift of PPC)

Contraction

a period of economic decline marked by falling real GDP; includes a drop in real personal income, industrial production, and retail sales; it increases unemployment rates

Underutilized Resources

resources available that are not being used to their fullest potential

Constant Opportunity Cost

resources are easily substitutable/adaptable for producing either good; linear line

Increasing Opportunity Cost

a situation in which producing more of one good requires giving up an increasing amount of production of another good

Decreasing Opportunity Cost

having to give up an ever decreasing amount of one good to get additional units of another

Capital Goods

goods that are used in producing other goods, rather than being bought by consumers

Consumer Goods

goods produced for present consumption