Basic Economic Concepts: Key terms and Principles

AP MACRO

Absolute Advantage

The ability to produce resources to produce goods than other producers.

Capital

The tools/equipment to produce goods and services.

Ceteris Paribus

“Other Things Being Equal“

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than someone else.

Economics

The study of logical choices, given low resources, to get what you want/need.

Economist

An individual who studies economics

Entrepreneur

An individual who possesses the factor of production called entrepreneurship.

Entrepreneurship

A person wanting to take risks to build a business and combine land,labor and capitol in ways to make profits.

Factors of Production

The resources used to produce goods and services.

Interest

Cost/fee someone charges you to borrow something.

Labor

People’s mental and physical skills used to produce goods.

Land

Natural resources used to produce goods and services.

Law of Increasing Opportunity Cost

As the production of one good increased, producers must sacrifice increasing amounts of other goods.

Marginal Benefit

Additional benefit of consuming one extra unit of a good or service.

Marginal Cost (Ex. Mom making cookies)

Additional cost of producing one extra unit of a good or service.

Market

A place where you can buy and sell goods.

Opportunity Cost

When a choice is made about the use of a limited resource.

Production Possibilities Curve

Model showing all possible combinations of two goods that could be produced using scarce factors of production.

Production Possibilities frontier

The maximum possible output of two goods that an economy can produce with the limited resources.

Productive Efficiency

Making goods and services at the lowest possible cost by using all resources with little to none waste.

Profit

The amount of money you make selling the good once subtract the cost of the good.

Rent

Payment for the use of something you do not own.

Scarcity

When something is very limited; peoples wants and needs are greater than the available source

Specialization

When a producer focuses on one particular good/service.

Terms of Trade

the rate at which people trade two goods.

Trade-Off

An alternative use for scarce factors of production.

Wages

What some gets paid to work