AP Macroeconomics Unit 1

needs

absolute necessities of life

wants

things that are desirable but not needed for existence

scarcity

gap between limited resources and unlimited wants

choice

decisions about how to use resources to satisfy basic needs and as many additional wants as posssible

economics

study of how people and societies use limited resources to satisfy unlimited wants

economist

professionals who study the way society allocates its resources to satisfy its wants

microeconomics

study of effects of economic forces on individuals parts of the economy (business, workers, or households)

macroeconomics

study of the impact of changes to the economy as a whole rather than an individual part

goods

tangible items of value (see/touch)

services

intangible things with value

consumer

people who buy goods and services for personal use

consumption

act of buying goods and services

economic resources

things that go into making of goods and services

factors of production

things that go into making of goods and services

producer

people/institutions that make and offer goods and services

natural resources

raw materials that exist on Earth

human resources

labor/workforce that refers to people and skills into the production of goods and services

capital resources

machines, tools, and buildings used in the production of goods and services

depreciation

measure the decline in the values of capital goods

entrepreneurship

process of bringing together three factors (natural, human, capital)

entrepreneur

individual who organizes business/invests time and money to earn profit

trade-off

giving up choices to obtain something else

opportunity cost

trade-off of the value of one good/service for value of another

production possibilities curve (PPC)

graph illustrating the trade-offs/opportunity costs associated with two goods/services

absolute advantage

person, business, or country that can produce more of a good or service than other producers when it has the same quantity of resources (more efficient)

comparative advantage

ability to produce goods/services at a lower opportunity cost than another producer

specialization

focusing production on select goods to increase efficiency

division of labor

assigning different, specific tasks to workers

mutually beneficial trade

countries specialize and trade with each other to maximize PPC

gains from trade

when 2 specialized countries trade and both benefit from increased consumption of goods

demand

consumers’ desire and ability to purchase goods and servicesdes

law of demand

relationship between the quantity of goods and services that are demanded the price

determinants of demand

(or shifters of demand) affect how much consumer will purchase at every price

substitute

goods that can be purchased in place of another

complementary

goods that are purchased alongside a particular good/service

demand curve

price on y-axis, quality demanded on x-axis, relates price to quality demanded (shift right = increase in demand)

supply

amount of good/service a producer is willing and able to sell at a given price

law of supply

when all other factors are equal, a positive relationship between price and quality established

determinants of supply

factors other than price that impact how much of a good producers are willing/able to supply

supply schedule

table showing relationship between the price of a good/service and the quantity supplied when all other determinants are equal

supply curve

supply schedule plotted on graph (x=quantity, y= dollars) and with connected points

equilibrium price

price which supply and demand are equal, demand and supply curves intersect

disequilibrium price

imbalance in price and items

surplus

excess supply for the price

shortage

supply too small to fill demand at price