AP Econ Unit 1 Terms

All topics of Unit 1 (Basic Economics)

Scarcity

fundamental economic problem - unlimited wants + limited resources

Economics

the study of choices - making choices22 on how we will use our resources

Microeconomics

individuals+ firms

Macroeconomics

governments

Theoretical economics

scientific method to make generalizations to develop theories (explaining economic concepts)

Policy economics

theories are applied to fix problems/meet goals

Positive Statement

based on facts (what is)

Normative Statement

includes values judgement (what ought to be)

Thinking at the Margin

keep doing something only until cost equals the benefit

Marginal Analysis

making decisions based on additional benefit vs additional cost

Opportunity cost

next best alternative you give up when you make a decisions

Economic Growth

produce more and better goods and services (good economy = lots of stuff)

Full Employment

provide jobs for everyone willing to work

Price Stability

avoid inflation (not possible if economic goals 1 & 2 are true) or deflation

Economic Efficiency

make best use of available resources

Productive Efficiency

producing goods & services in the least costly way - any point on the PPC

Allocative Efficiency

producing goods wanted by society - optimal point on the PPC, depends on the desires of society

Social Economic Goals

things we have to balance/consider (in the US)

Economic Freedom

everyone has the freedom to do what they want

Equal Distribution of Wealth

none too rich or too poor (this isn’t really sustainable though)

Economic Security

providing disables w/ means of earning income

Balance of Trade

balance with the rest of the world

Land

natural resources that are just there

Labor

physical ability to do work

Capital

aid to production

• human captial: skills or knowledge gained through education or experience

Entrenpreneurship

ambitious leaders that combine the other factors of production to create goods & services (take initiative, innovate, ask as the risk bearers = all to profit)

Production Possibilities Curve

shows the alternative ways an economy uses its scarce resources

Law of Increasing Opportunity Cost

as you produce more of any good, the opportunity cost will increase - moving more resources becomes costly as resources are not easily adaptable

Constant Opportunity Cost

resources are easily adapatable - straight PPC

Per Unit Opportunity Cost

how much each marginal unit costs - opportunity cost over units gained

Shifters of the PPC

change in resource quantity/quality, technology, or trade

Trading

Having access to things you can’t produce OR they can produce better AND mutually beneficial