AP Micro unit 1

Vocab

Scarcity

The basic economic problem that arises because resources are limited but human wants are unlimited.

Opportunity Cost

The value of the next best alternative that is given up when a choice is made.

Comparative Advantage

The ability of an individual or country to produce a good or service at a lower opportunity cost than others.

Absolute Advantage

The ability to produce more of a good or service than others using the same amount of resources.

Specialization

When individuals, businesses, or countries focus on producing the goods or services they are best at producing.

Mutually Beneficial Trade

Trade that makes both parties better off by allowing each to specialize and exchange goods or services.

Productivity

A measure of how efficiently inputs (like labor and capital) are used to produce outputs.

Human Capital

The knowledge, skills, education, and training that workers possess.

Physical Capital

Man-made goods used to produce other goods and services, such as machinery, tools, and buildings.

Production Possibilities Curve (PPC)

A graph that shows the maximum combinations of goods and services that can be produced with available resources and technology.

Property Rights

The legal rights to own, use, and dispose of property.

Optimum Consumption Rule

Consumers maximize satisfaction when the marginal utility per dollar spent is equal for all goods.

Role of Incentives

The idea that people respond to rewards and penalties when making decisions.

Utility

The satisfaction or happiness a person gets from consuming a good or service.

Marginal Analysis

The process of making decisions by comparing the additional (marginal) benefits with the additional (marginal) costs.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Marginal Cost

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