AP Macro 1.1-1.3 Quiz

scarcity

scarcity

unlimited wants, limited resources

economics

the study of choices

marginal

additional

marginal analysis

making decisions based on increments

trade-offs

ALL of the alternatives that we give up when making a choice

opportunity cost

whatever you give up to do something

utility

satisfaction

allocate

distribute

price

the amount the consumer pays

cost

the amount an item costs to make

investment

the money spent by businesses, ONLY businesses buying capital

consumer goods

direct consumption (pizza)

capital goods

indirect consumption (pizza ovens), used to make consumer goods

Factors of Production

land, labor, capital, entrepreneurship

land

all natural resources that are used to produce goods/services; a factor of production

labor

any effort a person devotes to a paid task; a factor of production

physical capital

human-made resource used to create other goods/services; a factor of production

human capital

skills/knowledge gained by a worker through education and experience; a factor of production

entrepreneurship

ambitious leaders that combine the other factors of production to create goods/services

profit equals

revenue minus cost

productivity

number of outputs per unit of input; measure of efficiency

PPC stands for

Production Possibilities Curve

PPC

a graph that shows alternative ways an economy can use its scarce resources

an assumption of the PPC

only goods can be produced

an assumption of the PPC

full employment of resources

an assumption of the PPC

fixed resources

an assumption of the PPC

fixed technology

what produces a straight line PPC?

constant opportunity cost; resources are easily adaptable for producing either good (pizza and calzones)

Law of Increasing Opportunity Cost

as you produce more of a good, the OC will increase; resources are not easily adaptable to producing both goods (concave PPC)

shifter of the PPC

change in resource quantity/quality

shifter of the PPC

change in technology

shifter of the PPC

change in trade

decrease in demand on the PPC

no shift

Per Unit Opportunity Cost Formula

opportunity cost/units gained

absolute advantage

the producer that can produce the most output OR requires the least amount of resources

comparative advantage

the producer with the lowest opportunity costs

Terms of Trade

the agreed upon conditions that would benefit both countries, one of the second good for the “costs ___” of the other in a range