AP Macroeconomics Terms Quiz 1

Opportunity Cost

What must be given up to get something in return

Consumer Goods

Tangible commodities produced to satisfy the current wants and perceived needs of buyers

Economic Resources

Land, Capital, Labor, and Entrepreneurial Ability

Capital Goods

capital goods are durable, produced assets used to make other goods and services.

Factors of Production

Resources used in the production process to produce goods and services

Increasing Opportunity Cost

the principle that as you produce more of one good, each additional unit requires giving up a larger amount of the other good because resources are not perfectly adaptable between the two

Production Possibilities Curve

graphic representation of opportunity cost

Constant Opportunity Cost

a production scenario in which the amount of one good you must give up to produce one more unit of another good remains the same no matter how much of each good is already being produced

Scarcity

The situation where limited resources cannot satisfy all wants and needs

Land

refers to all natural resources used in production

Labor

refers to the work time and work effort that people devote to producing goods and services

Capital

refers to human-made, tangible goods used to produce other goods and services

Absolute Advantage

when an individual, business, or country can produce more of a good or service than any other producer using the same quantity of resources

Comparative Advantage

when a producer (individual, firm, or country) sacrifices less of one good to produce another compared with others. It is opportunity‑cost based, not about producing more output

Gains from Trade

explain why voluntary exchange can make every trading partner better off. By specialising and then trading, countries, firms, or individuals can reach consumption levels that would be unattainable if they had to produce everything themselves.

What “gains from trade” mean

Law of Demand

a fundamental concept in the study of supply and demand. It states that there is an inverse relationship between the price of a good and the quantity demanded — when the price increases, the quantity demanded decreases, and when the price decreases, the quantity demanded increases

Determinants of demand

the non‑price factors that change consumers’ willingness and ability to buy a good or service, causing the entire demand curve to shift

Change in demand

refers to a shift of the entire demand curve to the right (increase in demand) or to the left (decrease in demand) due to an outside influence that changes consumers’ willingness and ability to buy a good at all price levels

Change in Quantity Demanded

refers to the movement along the same demand curve caused by a change in the price of the good or service itself, while all other factors (income, tastes, prices of related goods, expectations, number of buyers) are held constant

Equilibrium Quantity

the amount of a good or service that is bought and sold at the equilibrium price, found at the intersection of the supply and demand curves

Price Floor

a legal minimum price. Sellers are not allowed to charge less than it, no matter what the market says. The classic examples are the minimum wage (a price floor on labor) and agricultural price supports on crops like corn or milk.

Law of Supply

describes a positive relationship between price and quantity supplied. Producers are more willing and able to offer goods for sale at higher prices because higher prices increase potential revenue and profitability.

Determinants of Supply

the non‑price factors that change the quantity of a good or service producers are willing and able to sell at every price level. When a determinant changes, the entire supply curve shifts

Change in Supply

refers to a shift in the entire supply curve — meaning the quantity of a good or service that producers are willing and able to sell at every price level changes due to factors other than the price of the good itself

Change in Quantity Supplied

refers to a movement along the same supply curve caused by a change in the price of the good itself, while all other factors (non-price determinants) remain constant

Equilibrium Price

the price at which the quantity demanded equals the quantity supplied, so the market “clears” — there is no surplus or shortage

Substitute Good

are two products that can be used in place of each other to satisfy the same need or want. When the price of one good rises, consumers tend to switch to the other, increasing its demand

Complimentary Good

a product that is typically used together with another good or service. The value of one good is often enhanced by the presence of the other, and they are usually consumed jointly. If you buy more of one, you tend to buy more of the other, and vice versa

Surplus

is a disequilibrium condition where quantity supplied exceeds quantity demanded at the current market price

Shortage

a market condition where the quantity demanded exceeds the quantity supplied at the current price — in other words, there is excess demand

Price Ceiling

a limit on the price of a good or service imposed by the government to protect consumers by ensuring that prices do not become prohibitively expensive. For the measure to be effective, the price set by the price ceiling must be below the natural equilibrium price.