AP Macroeconomics: Unit 1 Vocabulary

Economics

The study of how individuals and societies choose to allocate scarce resources to satisfy unlimited wants.

Scarcity

The condition where unlimited wants exceed the limited resources available to fulfill those wants.

Economy

A system for coordinating the production and distribution of goods and services.

Economic Resource

Inputs used to produce goods and services, including land, labor, capital, and entrepreneurship.

Factors of Production

The four essential economic resources: land, labor, capital, and entrepreneurship.

Land

Natural resources used to produce goods and services (e.g., water, minerals, soil).

Labor

Human effort (physical and mental) used in production.

Capital

Tools, machinery, buildings, and equipment used in production—not financial capital like money.

Entrepreneurship

The initiative to combine land, labor, and capital to produce goods/services and bear the risks of business.

Efficiency

Maximizing output from given inputs; no wasted resources.

Inefficiency

Underusing resources; producing less than possible.

Opportunity Cost

The next best alternative foregone when a choice is made.

Tradeoffs

The concept that one must give up some alternatives when making a choice; all the alternatives that must be given up when a choice is made.

Underutilized Resources

Resources that are not being used to their full potential.

Economic Growth

An increase in the amount of goods and services produced over time.

Economic Model

A simplified representation of reality used to predict and explain economic behavior.

Ceteris Paribus

Latin for 'all other things being equal'; used to isolate the effect of one variable.

Productivity

A measure of how efficiently an economy converts inputs into outputs, essentially reflecting how much is produced for a given amount of resources; usually measured as output per unit of input or as output per worker.

Technology

Improvements, usually scientific, in knowledge or methods that increase productivity.

Trade

The exchange of goods and services between people or nations.

Capital Stock

The total amount of physical capital available in an economy.

Accumulation

The growth of capital stock or wealth over time.

Specialization

Concentrating production on a limited range of goods to increase efficiency.

Gains from Trade

The benefits both parties receive when they specialize and trade.

Terms of Trade

Refers to the ratio of a country's export prices to its import prices, often expressed as an index; it indicates how much a country can import for a given amount of exports and reflects the purchasing power of a country's exports in terms of its imports.

Absolute Advantage

The ability to produce more of a good using the same amount of resources.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer.

Competitive Market

A market with many buyers and sellers where no single party can control the price.

Supply and Demand Model

A model showing how buyers and sellers interact to determine price and quantity.

Law of Demand

As price decreases, quantity demanded increases (and vice versa), ceteris paribus.

Price

The amount of money exchanged for a good or service.

Quantity Demanded

The amount of a good that buyers are willing and able to purchase at a specific price.

Demand Schedule

A table showing quantity demanded at various prices.

Demand Curve

A graphical representation of the demand schedule.

Movement Along the Demand Curve

A change in quantity demanded due to a change in price.

Shift in Demand

A change in demand due to factors other than price (e.g., income, preferences).

Determinants of Demand

Factors that shift demand: income, tastes, population, expectations, prices of related goods.

Complementary Good/Service

A good used together with another good (e.g., peanut butter and jelly).

Substitute Good/Service

A good that replaces another (e.g., Coke and Pepsi).

Normal Good

A good for which demand increases as income increases.

Inferior Good

A good for which demand decreases as income increases.

Law of Supply

As price increases, quantity supplied increases (and vice versa), ceteris paribus.

Quantity Supplied

The amount of a good sellers are willing and able to sell at a specific price.

Supply Schedule

A table showing quantity supplied at various prices.

Supply Curve

A graphical representation of the supply schedule.

Movement Along the Supply Curve

A change in quantity supplied due to a change in price.

Shift in Supply

A change in supply due to factors other than price (e.g., technology, costs).

Determinants of Supply

Factors that shift supply: resource prices, technology, taxes/subsidies, expectations, number of sellers.

Equilibrium

The point where quantity demanded equals quantity supplied.

Equilibrium Price

The price at which supply equals demand.

Equilibrium Quantity

The quantity exchanged at the equilibrium price.

Surplus

When quantity supplied exceeds quantity demanded at a given price.

Shortage

When quantity demanded exceeds quantity supplied at a given price.

Indeterminate Price

When a change in market conditions affects supply and demand in ways that make the price change unclear.

Indeterminate Quantity

When the impact on equilibrium quantity is unclear due to simultaneous shifts in supply and demand.