unit 1 ap econ Flashcards Set

Scarcity

The limited nature of society's resources, meaning there are not enough resources to satisfy all desires.

Opportunity Cost

The next best alternative that is given up when making a choice.

Marginal Thinking

Analyzing the additional benefits of an action compared to its additional costs.

MB=MC

A principle stating that optimal decisions are made when marginal benefits equal marginal costs.

Positive Economics

The branch of economics that deals with objective analysis and facts.

Normative Economics

The branch of economics that involves value judgments and opinions about economic policies.

Circular Flow Model

A visual model that shows how money and products flow through the economy.

Factors of Production

Resources used in the production of goods and services: land, labor, capital, and entrepreneurship.

Law of Increasing Opportunity Cost

As production of one good increases, the opportunity cost of producing an additional unit of this good increases.

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded.

Supply Schedule

A table that shows the relationship between the price of a good and the quantity supplied.

Market Equilibrium

The situation where quantity supplied equals quantity demanded at a particular price.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a good and the actual price they receive.

Deadweight Loss

The loss of economic efficiency that occurs when equilibrium for a good or service is not achieved.

Price Ceiling

A maximum price set by the government that can be charged for a good or service.

Price Floor

A minimum price set by the government that must be paid for a good or service.

Substitutes

Goods that can be used in place of each other.

Complements

Goods that are often used together, where an increase in the price of one decreases the demand for the other.

Normal Goods

Goods for which demand increases as consumer income rises.

Inferior Goods

Goods for which demand decreases as consumer income rises.

Total Surplus

The sum of consumer surplus and producer surplus in a market.

International Trade

The exchange of goods and services between countries.

Government Tax Revenue

The income earned by the government from taxing goods and services.

Production Possibilities Frontier

A graph that shows the maximum possible production of two goods given available resources.

Efficient Allocation

A distribution of resources that maximizes the total surplus of the economy.

Price Shift

Changes in the price of a good that can lead to shifts in supply or demand curves.

Supply Shift

A change in the quantity supplied at every price, represented by a new supply curve.

Demand Shift

A change in the quantity demanded at every price, represented by a new demand curve.