AP Econ Vocabulary #1

Scarcity

the lack of a product or resource. Resources are finite or limited. (no scarcity=no economics)

Economics

the study of how society divides up its scarce resources to satisfy unlimited wants.

Resources

(Or factors) are things used to make goods.

Goods

Physical objects- cars, pizza, air conditioners, Norton antivirus software

Services

performing work for others, haircuts, being taught, hiring a lawyer, someone making your food, a police officer etc...

Shortages

a temporary lack of a product or resource (not permanent)

Surplus

having more than what is needed of a product or resource

Necessities

goods, which satisfy basic human needs.

Luxuries

goods which consumers want, but don't need

Consumer Goods

products used for consumption eg cars, pizza, toys.

Producer Goods

products used to make consumer goods. eg hammer and cranes.

The Four Factors of Production

1. Land: natural resources such as trees, water, or minerals

2. Labor: mental and physical labor such as autoworkers or scientists.

3. Capital: factories, machines (producer goods), and money.

4. Entrepreneurship- a person who takes financial risks to start a business

Rational Self Interest

in this class you will assume all people choose options that give them the greatest satisfaction (aka utility). People use available information, weigh costs and benefits, and make a self-interested choice in their favor.

Microeconomics

study of how firms and households make decisions.

Macroeconomics

study of the economy as a whole. (GDP, inflation, unemployment, importing exporting)

Business Investor/Investment

a business that wants to expand and needs/likes to borrow money at low interest rates in order to grow their business (by buying capital goods, eg pizza ovens, or hiring/training workers to expand)

Financial Investor/Investment

a person who has money and wants to sell it. They like to buy high interest yielding bonds at high interest rates or sell the money to banks at high interest bearing savings accounts. Higher interest rates mean the borrower pays the lender back more money for their loans

Principle

(finance term) the initial amount of a loan

Interest

the price of money (or the price of a loan)

(eg You lend me $100 at a charge of 5% interest, then I pay you back the principle $100 + the 5% interest, so $105 total)

Asset

An owned resource with value that will provide a future wealth

Marginal

means additional (economic definition)

Utility

Total satisfaction from consuming a good or service

Price

What a consumer pays

Cost

what a producers pays to produce something….eg - if costs go up, so will price

Tradeoff

giving up one thing for another

Opportunity cost

the value of the next best thing you give up when choosing something else

        example: I have 3 choices to do something after school

-sleep   -video games   -chat with friends

If you chose video, that is your choice. The one you would have chosen 2nd, say sleep, that is your opportunity cost

Balanced Budget

when all taxes collected by a gov’t = all gov’t Spending

Budget Deficit

when Gov’t spending > taxes collected

Budget Surplus

when Gov’t spending < taxes collected

National Debt

the total amount of annual deficits added together year after year

Bond

a bond is a loan that needs to be paid back with interest.  It is a financial product; if you buy a bond, you are loaning money to a national Gov’t (eg. Treasury Bond in the USA), a State or local gov’t (Municipality Bond), or a corporation like McDonalds (a Corporate Bond). They all have to pay you back at the end of the bond’s term, aka, when the bond matures. They have to pay you back the full amount of the Bond (the Principle) + Interest (the price of the loan). This happens if you decide to hold onto the bond. But what if you decide you don’t want the bond anymore, for example, you need to raise cash in an emergency? In that case you can sell the bond on the Bond Market.