AP Macroeconomics Unit 1 Vocab

bar chart

A graph that shows values of a variable (or variables) with bars that run up or across a graph.

capital

Equipment, buildings, and human abilities that are used in producing goods and services.

capitalism

An economic and political system characterized by a free market in which private individuals and corporations exchange resources between themselves.

capitalist economy

A capitalist economy is characterized by the free interaction of buyers and sellers in unregulated markets.

circular flow of economic activity

The combined economic activity in the factor, product, and financial markets; an examination of the flow of income, expenditures, and goods and services between the sectors of the economy.

command economy

An economic system that uses central government planners to determine the production and distribution of goods and services.

dependent variable

A variable that changes in response to changes in the independent variable.

economic growth

An increase in total output over time.

economic system

A collection of institutions that are used to determine the production and distribution of goods and services.

economics

A social science concerned with the study of human behavior constrained by scarcity.

efficiency

A condition in which a reallocation of resources among producers will not lead to an increase in their combined output; no resources are being wasted.

entrepreneurship

The ability to create new ways of combining the factors of production to create new products or produce old products more efficiently.

equation

A mathematical formula relating the relationship between two or more variables.

factor market

A market in which resources and semi-finished products are exchanged.

factors of production

Something used in creating a good or a service, including land, labor, capital, and entrepreneurship.

free enterprise

An economic system in which buyers and sellers freely decide what to trade and with whom to trade.

free good

A good people want that is not scarce; people can obtain it at no cost.

full employment

The level of employment at which cyclical unemployment does not exist.

good

An object that satisfies a want.

graph

Data expressed in a visual manner, usually on a grid that measures numerical data.

growth

Increases in quantity and quality of goods and services produced by an economy. Alternatively, an increase in the standard of living of a country.

human capital

Intangible types of capital possessed by people, such as knowledge and skill.

independent variable

A variable that causes a dependent variable to change.

inflation

A general increase in prices over time, during which many prices in the economy rise.

inputs

Resources, or factors of production, used to make goods and services, categorized as land, labor, and capital (and for some economists, entrepreneurial ability).

intercept

Point where a line or curve touches an axis.

interest

The payment received by capital owners in a factor market.

invisible hand

A term used by Adam Smith in The Wealth of Nations to describe the forces in a market economy that harness self-interest to achieve the greatest benefit for the economy.

labor

Human physical and mental effort that is used in producing goods and services

laissez-faire

A French term meaning "allow you to do" or "let them be." A government that follows a laissez-faire policy will do little or nothing to regulate the economy.

land

Natural resources that are used in producing goods and services.

line graph

A graph that shows values of two related variables on one line.

macroeconomics

A subfield of economics; the study of the collective behavior of a society of individuals constrained by scarcity.

macroeconomist

One who practices macroeconomics.

market

A place where buyers and sellers exchange goods or services for a price on which they agree. The exchange may be concentrated in one location or spread over many places.

market system

An economic system that uses markets and prices to determine the production and distribution of goods and services.

microeconomics

A subfield of economics; the study of individual human behavior constrained by scarcity.

microeconomist

One who practices microeconomics.

mixed economy

An economic system that combines elements of two or all three types of economic systems.

negative slope

A line in which a positive change on the horizontal axis is associated with a negative change on the vertical axis, and a negative change on the horizontal axis is associated with a positive change on the vertical axis.

physical capital

Tangible types of capital, such as machinery and buildings.

positive slope

A line in which a positive change on the horizontal axis is associated with a positive change on the vertical axis, and a negative change on the horizontal axis is associated with a negative change on the vertical axis.

price

The terms of trade established in a market when buyers trade money to sellers in exchange for goods and services.

product market

A market in which finished goods and services are exchanged.

productivity

The amount of output that a given unit of input can produce.

profit

The total revenue earned from sales of products minus the total cost of the resources used.

pure market economy

An economic system in which resources are privately owned and economic activity is unregulated by the government.

recession

A contraction of the economy characterized by declines in the total output of the economy for six or more consecutive months. More technically, a decrease in total output over two consecutive quarters.

rent

The payment received by land owners in a factor market.

rent control law

A law that prevents apartment rental rates from rising above a predetermined level.

resource

Goods are produced using resources: land, labor, capital, and, for some economists, entrepreneurship.

resource market

A resource market is where resources and semi-finished products are exchanged. It is also called a factor market.

scarcity

A situation in which there are not enough resources to satisfy everyone's wants.

self interest

An individual's wants and desires, which may include the well being of others.

service

An activity that satisfies a want.

slope

Ratio of change in the variable on the vertical axis to the change in the variable on the horizontal axis; also, described as the "rise" over the "run."

Smith, Adam

(1723-1790) An early, influential, Scottish economist. He wrote The Wealth of Nations in 1776, which explained the ability of markets to coordinate economic activity.

standard of living

A loose analysis of how "well off" the members of an economy are. One way of measuring this is by measuring the amount of goods and services an individual can purchase with a given level of income.

total cost

The total amount of money paid for resources used in production.

total output

The total production of goods and services, usually measured by adding up the prices of all the goods and services produced in an economy in one year

total revenue

The total amount of money earned by the sale of products.

traditional economy

An economic system that uses the customs and religious practices of its ancestors to determine the production and distribution of goods and services.

transitional economy

An economic system that is transforming from one economic system to another.

unregulated market

A market in which the government does not intervene in buyers' and sellers' decisions.

value

Importance of a good, service, or resource as measured by the intensity with which people desire it.

wage

The payment received by labor providers in a factor market.

want

A desire that can be fulfilled by a good or a service.

The Wealth of Nations

A book written by Adam Smith in 1776. In it, Smith explained the functioning of markets and put forth the claim that the market economy is the best way to structure an economy.