AP Microeconomics Unit One

Scarcity

We have unlimited wants but limited resources

Economics

The science of scarcity

Microeconomics

Small economic units. Industries, labor markets, and production

Macroeconomics

Economy as a whole. Government spending, inflation, and unemployment

Utility

Satisfaction

Marginal

Additional

Allocate

Distribute

Price

Amount consumer pays

Cost

Amount seller pays to make said product

Consumer

Direct consumption

Capital Good

Indirect Consumption

Land

Natural resources

Labor

Paid work a person accomplishes

Physical Capital

Human made

Human Capital

skills, knowledge, education

Entrepreneurship

Starting and managing a business, taking financial risks for profit.

Productivity

Measure of efficiency that shows the number of outputs per unit of input

Command economy

Government owns and controls all resources

Free economy

Laissez faire (let it be)

The Invisible Hand

Society’s goals will be met as individuals seek their own interests

Mixed Economy

A system blending command and free markets

PPC (Production Possibilities Curve)

A model that shows alternative ways that an economy can use its scarce resources

Constant Opportunity Cost

Resources are easily adaptable for producing either good. Result is a straight line PPC (not common).

Increasing Opportunity Cost

As you produce more of any good, the opportunity cost (forgone production of another good) will increase.

Absolute Advantage

The producer that can produce the most output Or requires the least amount of inputs (resources).

Comparative Advantage

The producer with the lowest opportunity cost

Terms of Trade

The agreed upon conditions that would benefit both countries

Trade-offs

All the alternatives that we give up when we make a choice

Opportunity Cost

Most desirable alternative given up when you make a choice

Explicit costs

the traditional out of pocket costs associated with making a decsion

Implicit Cost

The opportunity costs of making a decision

Marginal Benefit

The additional satisfaction or utility a consumer gains from consuming one more unit of a good or service

Marginal Cost

The cost of producing one additional unit of a good or service

Marginal analysis

Making decisions based on incriments

Law of Diminishing Marginal Utility

As you consume anything, the additional satisfaction that you will receive will eventually start to decrease

Utility Maximizing Rule

The consumer’s money should be spent so that the marginal utility per dollar of each goods equal each other