AP Economics: Fundamentals, Demand & Supply, Elasticity, Market Efficiency

Resources

The inputs used to produce goods and services, including land, labor, human capital, physical capital, and entrepreneurship.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Opportunity Cost

The value of the next best alternative that is forgone when making a choice.

Incentives

Factors that motivate individuals to act in a certain way, influencing their decisions and behaviors.

Marginal Decision Making

The process of making decisions based on the additional benefits and costs of an action.

Marginal Benefit

The additional satisfaction or utility gained from consuming one more unit of a good or service.

Marginal Cost

The additional cost incurred from producing one more unit of a good or service.

Rational Self-Interest

The assumption that individuals act in ways that they believe will maximize their own utility.

Value is Subjective

The concept that the value of a good or service is determined by the preferences and perceptions of individuals.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal,' used to isolate the effect of one variable in economic analysis.

Simple Trade

The voluntary exchange of goods and services that creates value for both parties involved.

Property Rights

Legal rights to use and control resources, which create incentives for individuals to manage and invest in those resources.

Production Possibilities Curve

A graphical representation showing the maximum feasible amounts of two goods that can be produced with available resources.

Specialization

The process by which individuals or entities focus on a limited scope of production to gain greater efficiency.

Law of Comparative Advantage

The principle that states that individuals or nations should produce goods for which they have a lower opportunity cost.

Terms of Trade

The ratio at which one good can be exchanged for another in trade.

Law of Demand

The principle that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa.

Demand Schedule

A table that shows the quantity of a good that consumers are willing to purchase at various prices.

Change in Demand

A shift in the demand curve that occurs when a non-price factor affects demand, leading to a different quantity demanded at every price.

Change in Quantity Demanded

A movement along the demand curve due to a change in the price of the good.

Market Demand

The total quantity of a good that all consumers in a market are willing and able to purchase at various prices.

Law of Supply

The principle that, all else being equal, as the price of a good increases, the quantity supplied increases, and vice versa.

Supply Schedule

A table that shows the quantity of a good that producers are willing to sell at various prices.

Market Equilibrium

The point at which the quantity of a good demanded equals the quantity supplied, resulting in no excess supply or demand.

Consumer Surplus

The difference between what consumers are willing to pay for a good 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 the equilibrium outcome is not achievable or not achieved.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to changes in price or other factors.

Own-Price Elasticity of Demand

A measure of how much the quantity demanded of a good changes in response to a change in its own price.

Income Elasticity of Demand

A measure of how much the quantity demanded of a good changes in response to a change in consumer income.

Cross-Price Elasticity of Demand

A measure of how much the quantity demanded of one good changes in response to a change in the price of another good.

Price Elasticity of Supply

A measure of how much the quantity supplied of a good changes in response to a change in its price.