AP Comparative Government: Economics Test Review Sheet

Laws of Demand and Supply

If price is high, quantity demanded will be low; if price is low, quantity demanded will be high.

Utility

The usefulness of a product based on individual incentives and interests.

Demand Curve Shifts

Caused by changes in income (normal and inferior), related goods (substitutes and compliments), number of buyers (market size), consumer preferences, and expectations of price.

Supply Curve Shifts

Influenced by taxes and subsidies, producer expectations, number of sellers, technology, input prices, nature and political conditions, and government restrictions/regulations.

Price Creation

Prices are determined by the balance between what consumers are willing to pay and what producers are willing to charge for it.

Production Possibility Curves

Illustrate the trade-offs in production between different goods with limited resources.

Price Controls

Government interventions like taxes (people less likely to buy a more costly product) and subsidies (people more likely to buy a product because they’ll be compensated for it) that affect market prices and consumer behavior.

Adam Smith's Philosophy

Advocated for the "invisible hand" of self-interest to promote societal benefits and economic prosperity. Competition is key and the government role is solely to protect from invasion/violence/injustice/opression and erect/maintain public works and institutions.

Keynesian Economics

Emphasizes government intervention through fiscal policy to promote economic stability and public goods.

Economic Liberalism

Advocates for free markets with minimal government intervention, contrasting with Keynesian support for government involvement.

Communism

Aims for a classless society through the abolition of private property and economic inequality.

Social Democracy

Supports wealth redistribution, job protection through unions, and state control of certain production factors.

Liberalism

Emphasizes individual political and economic freedom with limited state intervention.

Mercantilism

Advocates for state protection of the national economy and discourages free trade.

Externalities

Costs or benefits that affect third parties not directly involved in a transaction, prompting government intervention.

Public Goods

Goods provided by the government that benefit all members of society, such as roads and military.

Fiscal Policy

Government spending and taxation strategies to influence the economy.

Monetary Policy

Actions by a central bank to control the money supply and interest rates.

Globalization Benefits

Includes comparative advantage, competition, improved standards of living, and enhanced diplomatic relations.

Neo-Liberal Policies

Focus on free markets, privatization, reduced tariffs, and increased foreign direct investment (FDI).

MNCs

Multinational corporations that drive globalization through international trade and investment.

Contagion

Economic failures in one country can spread to others due to interconnected trade.

Race to the Bottom

Competition among countries to lower labor and environmental standards to attract businesses.

Economic Colonialism

Exploitation of a developing country’s resources by a more developed nation.

Gini Index

Measures income inequality within a population, with a lower number indicating a smaller wealth gap.

Social Progress Index

Assesses societal well-being through various factors beyond economic measures.

Human Development Index

Combines life expectancy, education, and income to evaluate a country's development level.

Market Failures

Situations where the market does not allocate resources efficiently, necessitating government intervention.

Negative Externalities

Unintended adverse effects of economic activities, such as pollution.

Excise Tax

A specific tax on certain goods to discourage consumption or raise revenue.

Economic Vulnerability

Risks faced by an economy due to external factors, such as dependence or debt.

IMF

International Monetary Fund, which provides loans and monitors global economic stability.

World Bank

Offers funding for development projects in low and middle-income countries.

WTO

World Trade Organization, which regulates international trade agreements and practices.

Tariffs

Taxes imposed on imported goods to protect domestic industries.

Protectionism

Economic policy of restricting imports to protect local industries from foreign competition.

Trade-offs

The balance between different positive outcomes when making economic decisions.

Opportunity Cost

The value of the next best alternative that is forgone when making a choice.

Comparative Advantage

The ability of a country to produce goods at a lower opportunity cost than others.

Scarcity

The fundamental economic problem of having limited resources to meet unlimited wants.

Public Goods

Goods that are non-excludable and non-rivalrous, provided by the government for societal benefit.

Economic Integration

The process of reducing barriers to trade and increasing economic cooperation between countries.

FDI

Foreign Direct Investment, where a company invests in business operations in another country.

Labor Mobility

The ability of workers to move between jobs and locations, often influenced by economic conditions.