lap 1 ap microeconomics vocabulary

absolute advantage

the advantage held by an individual when producing a good or service if they can make produce more with a given amount of time and resources; contrasted with comparative advantage

ceteris paribus

in the development of a model, the assumption that all other relevant factors remain unchanged

command economy

an economy in which the factors of production are publicly owned and a central authority makes production and consumption decisions

comparative advantage

the advantage held by an individual if their opportunity cost of producing a good or service is lowest among the people who could produce that good or service; contrasted with absolute advantage

economics

the study of scarcity and choice

factors of production

a broad category of classification of resources

macroeconomics

the branch of economics that is concerned with the overall ups and downs of the economy

marginal utility

(of a good or service) the change in total utility generated by consuming one additional unit of a good or service

market economy

an economy in which the factors of production are privately owned and the decisions of individual producers and consumers largely determine what, how, and for whom to produce

microeconomics

the branch of economics that studies how individuals, households, and firms make decisions and how those decisions interact

mixed economy

economy which combines elements of traditional, market, and command economies

opportunity cost

the real cost of an item: the value of the next best alternative that you must give up in order to get that item

principle of diminishing marginal utility

states that each successive unit of a good or service consumed adds less to total utility than does the previous unit

production possibilities curve

illustrates the necessary trade-offs in an economy that produces only two goods; shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced

scarce (scarcity)

when a resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it

specialization (note the relationship between specialization and trade)

situation in which each person specializes in the task that they are good at performing; key source of the gains from trade

terms of trade

indicate the rate at which one good can be exchanged for another

trade off

when you give up something in order to have something else

traditional economy

economic system in which production and consumption decisions are based on precedent

utility

a measure of personal satisfaction

marginal analysis

the study of the costs and benefits of doing a little bit more of an activity versus a little bit less