AP Microeconomics Unit 1 Review

Economics

the science of scarcity/choices

Microeconomics

study of small economic units such as firms, individuals, and industries

Macroeconomics

study of large economy as a whole or economic aggregates

Theoretical Economics

Economics use the scientific method to make generalizations and abstractions to develop theories

Positive Economics

this type of economics is based on facts; avoids value judgments (what is)

Normative Economics

this type of economics includes value judgments (what ought to be)

Marginal Analysis

making decisions based on additional benefit vs. additional cost; more commonly used than, "all or nothing method."

Utility

Satisfaction

Marginal

Additional

Allocate

Distribute

Shortages

occur when producers will not or cannot offer goods or services at current prices (temporary)

Price

Amount buyer/consumer pays

Cost

Amount seller pays to produce a good

Investment

money spent by BUSINESSES to improve their production

Goods

physical objects that satisfy needs and wants

Consumer Goods

created for direct consumption

Capital Goods

created for indirect consumption

Services

actions/activities that one person performs for another

Accountants

look at only EXPLICIT costs (out of pocket costs)

Economists

look at EXPLICIT and IMPLICIT costs

Implicit Costs

opportunity costs such as forgone time and forgone outcome

Physical Capital

tools, tractors, machinery, buildings

Human Capital

college degrees, vocational training (skills and knowledge gained)

Prediction Possibilities Graph

A model that shows alternative ways that an economy can use its scarce resources; graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency

Constant Opportunity Cost

Resources are easily adaptable for producing either good

Law of Increasing Opportunity Cost

As you produce more of any good, the opportunity cost will increase

True

True or False: Resources are NOT easily adaptable to producing both goods.

Productive Efficiency

products are being produced in least costly way; any point on production possibilities curve

Allocative Efficiency

products being produced are ones most desired by society; optimal point on PPC depends on desires of society

Absolute Advantage

producer that co-produces most output OR requires least amount of inputs (resources)

Comparative Advantage

producer with lowest opportunity cost

Makes product cheater and Increases quality of product

What does specialization do for a product?