AP Macroeconomics Unit 1 Flashcards

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Economics

the study of scarcity and choice [Example: Deciding whether to use a plot of land for a park or a parking lot]

Individual Choice

the decision by an individual of what to do, which necessarily involves a decision of what not to do [Example: Choosing to buy a burger instead of a taco for lunch]

Economy

a system for coordinating a society’s productive and consumptive activities [Example: The network of producers and consumers in the United States]

Market Economy

an economy in which decisions about production and consumption are made by individual producers and consumers [Example: Businesses deciding what clothes to make based on consumer trends with no government involvement]

Resource

anything that can be used to produce something else [Example: Iron ore used to manufacture steel for cars]

Land

all resources that come from nature, such as minerals, timber, and petroleum [Example: A plot of fertile soil used for growing corn]

Labor

the effort of workers [Example: The physical and mental work performed by a software engineer]

Capital

manufactured goods used to make other goods and services [Example: A heavy-duty printing press used by a newspaper company]

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: A person starting a new tech company to bring a unique solar-powered device to the market]

Scarce

in short supply; a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it [Example: Clean drinking water during a severe drought]

Opportunity Cost

the real cost of an item; what you must give up in order to get it [Example: The opportunity cost of going to college is the wages you could have earned if you worked full-time instead]

Microeconomics

the branch of economics that studies how people make decisions and how those decisions interact [Example: Analyzing how a specific tax on sugar affects the price of soda]

Macroeconomics

the branch of economics that is concerned with overall ups and downs in the economy [Example: Examining the national unemployment rate or the effects of nationwide inflation]

Economic Aggregates

economic measures that summarize data across different markets for goods, services, workers, and assets [Example: The national unemployment rate or the Gross Domestic Product]

Positive Economics

the branch of economic analysis that describes the way the economy actually works [Example: A statement like "A 10% increase in the minimum wage will reduce teen employment by 2%"]

Normative Economics

makes prescriptions about the way the economy should work [Example: A statement like "The government should increase the minimum wage to help low-income families"]

Business Cycle

the short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions [Example: The cycle of recovery and growth following a market crash]

Depression

a very deep and prolonged downturn [Example: The Great Depression of the 1930s]

Recessions

periods of economic downturn when output and employment are falling [Example: A six-month period where businesses report lower sales and begin laying off staff]

Expansions

periods of economic upturn in which output and employment are rising [Example: A period of several years where the GDP grows and more people find jobs]

Employment

the total number of people currently employed for pay in the economy, either full-time or part-time [Example: A person working 40 hours a week as an accountant]

Unemployment

the total number of people who are actively looking for work but aren’t currently employed [Example: A recent graduate who has sent out ten resumes this week but has not yet found a job]

Labor Force

the sum of employment and unemployment [Example: All citizens in a city who either have a job or are actively seeking one]

Unemployment Rate

the percentage of the total number of people in the labor force who are unemployed [Example: If 5 out of every 100 people in the labor force are looking for work, the rate is 5%]

Output

the quantity of goods and services produced [Example: The total number of cars produced by a factory in a month]

Aggregate Output

the economy’s total production of final goods and services for a given time period, usually a year [Example: The total dollar value of all finished goods produced in the U.S. in 2023]

Inflation

a rise in the overall price level [Example: When the price of a typical basket of groceries rises from $100 to $105 over a year]

Deflation

a fall in the overall level of prices [Example: A period where the price of gas and electronics consistently drops across the whole country]

Price Stability

when the aggregate price level is changing only slowly, if at all [Example: An economy where the inflation rate remains steady at 2% for several years]

Economic Growth

an increase in the maximum amount of goods and services an economy can produce [Example: A country developing better infrastructure that allows for more factory production]

Model

a simplified representation of a real situation that is used to better understand real-life situations [Example: A circular flow diagram used to explain how money moves through the economy]

Other Things Equal Assumption

in the development of a model, the assumption that all other relevant factors remain unchanged [Example: Studying how a price change affects demand while assuming consumer income stays the same]

Trade-Off

when you give up something in order to have something else [Example: Giving up an hour of sleep to study for an extra hour]

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 graph showing the maximum combinations of "wheat" and "steel" a country can produce]

Efficient

describes a market or economy that takes all opportunities to make some people better off without making other people worse off [Example: A factory using all its machines and workers to their full capacity with no waste]

Technology

the technical means for producing goods and services [Example: The invention of the assembly line to speed up manufacturing]

Trade

when individuals provide goods and services to others and receive goods and services in return [Example: A person buying a coffee from a cafe with cash]

Gains from Trade

people can get more of what they want through trade than they could if they tried to be self-sufficient [Example: A baker trading bread for a tailor’s clothes so both have better food and clothing than if they made both themselves]

Specialization

each person specializes in the task that he or she is good at performing [Example: One worker in a kitchen only making dough while another only bakes it]

Comparative Advantage

the advantage conferred if the opportunity cost of producing the good or service is lower for another producer [Example: An island that gives up only 1 fish to pick 10 coconuts, while another island gives up 5 fish for the same 10 coconuts]

Absolute Advantage

the advantage conferred by the ability to produce more of a good or service with a given amount of time and resources [Example: A country that can produce 100 tons of corn per acre while another can only produce 50]

Competitive Market

a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold [Example: The global market for wheat]

Supply and Demand Model

a model of how a competitive market behaves [Example: Using supply and demand curves to determine the market price of milk]

Demand Schedule

a list or table showing how much of a good or service consumers will want to buy at different prices [Example: A table showing that at $2, 100 people buy apples, but at $5, only 20 people buy them]

Quantity Demanded

the actual amount of a good or service consumers are willing to buy at some specific price [Example: Exactly 500 laptops being bought when the price is $800]

Demand Curve

a graphical representation of the demand schedule, showing the relationship between quantity demanded and price [Example: A downward-sloping line on a graph representing the price of gasoline]

Law of Demand

the principle that a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service [Example: People buying less steak when the price per pound doubles]

Change in Demand

a shift of the demand curve, which changes the quantity demanded at any given price [Example: An increase in demand for umbrellas when it starts raining]

Movement Along the Demand Curve

a change in the quantity demanded of a good that is the result of a change in that good’s price [Example: Buying more pizza because it went on sale from $15 to $10]

Substitutes

pairs of goods for which a rise in the price of one good leads to an increase in the demand for the other good [Example: If the price of coffee rises, people buy more tea instead]

Complements

pairs of goods for which a rise in the price of one good leads to a decrease in the demand for the other good [Example: If the price of hot dogs goes up, people buy fewer hot dog buns]

Normal Good

a good for which the demand increases when income rises [Example: Dining out at restaurants more often after getting a raise]

Inferior Good

a good for which a rise in income decreases the demand for the good [Example: Buying less "store-brand" cereal once you can afford name-brand]

Individual Demand Curve

a graphical representation of the relationship between quantity demanded and price for an individual consumer [Example: A graph showing how many video games one person will buy at different price points]

Quantity Supplied

the actual amount of a good or service people are willing to sell at some specific price [Example: A gas station willing to sell 2,000 gallons of gas per day if the price is $3.50 per gallon]

Supply Schedule

a list or table showing how much of a good or service producers will supply at different prices [Example: A chart showing that a farmer will provide 500 bushels of corn at $4 but 1,000 bushels at $7]

Supply Curve

shows the relationship between the quantity supplied and the price [Example: An upward-sloping line showing how much lumber is produced at various prices]

Law of Supply

the principle that, other things equal, the price and quantity supplied of a good are positively related [Example: More people becoming gig-workers when the hourly pay rate increases]

Change in Supply

a shift of the supply curve, which changes the quantity supplied at any given price [Example: A breakthrough in technology that allows a company to produce more phones for the same cost]

Movement Along the Supply Curve

a change in the quantity supplied of a good that is the result of a change in that good’s price [Example: A bakery making more cupcakes because the price of cupcakes went up]

Input

a good or service that is used to produce another good or service [Example: Flour and yeast used to make bread]

Individual Supply Curve

a graphical representation that shows how an individual producer’s profit-maximizing output quantity depends on the market price, taking fixed cost as given

Equilibrium

an economic situation in which no individual would be better off doing something different [Example: A line at the grocery store where all registers have the same number of people, so no one switches]

Equilibrium Price

the price at which the market is in equilibrium, that is, the quantity of a good or service demanded equals the quantity of that good or service supplied [Example: The price of $1.20 for a soda where every buyer can find one and every seller can find a buyer]

Market-Clearing Price

another name for the equilibrium price [Example: The price of $1.20 for a soda where every buyer can find one and every seller can find a buyer]

Equilibrium Quantity

the quantity of a good or service bought and sold at the equilibrium (or market-clearing) price [Example: The exact number of 500 tickets sold when the price makes supply equal demand]

Surplus

when the quantity supplied exceeds the quantity demanded; occurs when the price is above its equilibrium level [Example: Having 100 unsold loaves of bread at the end of the day because the price was too high]

Shortage

when the quantity demanded exceeds the quantity supplied; occurs when the price is below its equilibrium level [Example: 50 people wanting a new gaming console when only 10 are in stock]

Price Controls

legal restrictions on how high or low a market price may go [Example: Laws that dictate the maximum rent a landlord can charge]

Price Ceilings

a maximum price sellers are allowed to charge for a good or service [Example: Rent control in a major city]

Price Floor

a minimum price buyers are required to pay for a good or service [Example: The federal minimum wage]

Minimum Wage

a legal floor on the wage rate. The wage rate is the market price of labor. [Example: The minimum wage in the state of California is $16.