AP Macroeconomics - Unit 1 - Vocabulary

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43 Terms

1

Economics

the study of scarcity and choice

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2

Trade-Off

You make a trade-off when you give up something in order to get something else (what you are gaining is the trade-off)

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3

Resource or Factor of Production

anything that can be used to produce something else

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4

Land

all resources that come from nature, such as timber, wind, and petroleum

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5

Labor

the effort of workers

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6

Capital

manufactured goods used to make other goods and services

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7

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

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8

Scarcity

when unlimited wants exceed limited resources

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9

Opportunity Cost

the value of the next best alternative (choice) that you have given up in order to get an item

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10

Macroeconomics

Concerned with the overall ups and downs of the economy (large scale)

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11

Household

a person or group of people that share their income

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12

Firm

any organization that produces goods or services for sale

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13

PPC

The Production Possibilities Curve illustrates the necessary trade-offs in an economy that produces only two goods.

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14

Ceteris Paribus

“Other things equal” means that all other relevant factors remain unchanged.

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15

Efficient

there are no missed opportunities – there is no way to make some people better off without making other people worse off

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16

Economic Growth

an increase in the maximum amount of goods and services an economy can produce

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17

Trade

providing goods and services to others and receive goods and services in return

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18

Specialization

when each person focuses on the task that they are good at performing

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19

Comparative Advantage

having the lowest opportunity cost among the people or countries that can produce that good or service

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20

Absolute Advantage

being able to produce more of a good or service with the given amount of time and resources

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21

Terms of Trade

the rate at which one good can be exchanged for another and have both parties benefit

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22

Quantity Demanded

the amount of a good or service consumers are willing and able to buy at some specific price. It is shown as a single point in a demand schedule or along a demand curve

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23

Demand Curve

a graphical representation of the demand schedule. It shows the relationship between quantity demanded and price

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24

Law of Demand

states that a higher price for a good or service, all other things being equal, leads to people to a smaller quantity demanded of that good or service

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25

Change in Demand

a shift of the demand curve, which changes the quantity demanded at any given price

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26

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

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27

Substitutes

goods that are meant to be used in place of one another. A rise in the price of one of the goods leads to an increase in demand for the other good.

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28

Complements

goods that are bought together to be used together. A rise in the price of one of the goods leads to a decrease in demand for the other good.

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29

Normal Good

when a rise in consumer income increases the demand for the good and vice versa

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30

Inferior Good

when a rise in consumer income decreases the demand for the good and vice versa

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31

Quantity Supplied

he actual amount of a good or service people are willing to sell at some specific price

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32

Supply Curve

the relationship between the quantity supplied and the price

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33

Law of Supply

states that all other things being equal, the price and quantity supplied of a good are positively or directly related

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34

Change in Supply

a shift of the supply curve, which indicates a change in the quantity supplied at any given price

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35

Movement along the Supply Curve

a change in the quantity supplied of a good arising from a change in the good’s price

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36

Input

a good or service that is used in the production of another good or service

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37

Tax

treated as an input cost, these are fees producers must pay to the federal government

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38

Subsidy

treated as an input cost, these are payments from the government to producers to assist in the production of certain goods or services that are deemed beneficial to society

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39

Substitutes in Production

goods that producers can use the same inputs to make either one good or the other

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40

Complements in Production

goods are treated as these if increased production of either good creates more of the other good

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41

Equilibrium

he point where QS = QD. This is the intersection point between the supply and demand curve

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42

Surplus

also known as excess supply and caused by a price floor, this exists at a price above equilibrium where QS > QD

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43

Shortage

also known as excess demand and caused by a price ceiling, this exists at a price below equilibrium where QD > QS

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