AP Econ Unit 1 terms

Scarcity

The limited nature of society’s resources.

Economics

The study of how society manages its scarce resources.

Efficiency

The property of society getting the most it can from its scarce resources.

Equity

The property of distributing economic prosperity fairly among the members of society.

Opportunity cost

Whatever must be given up to obtain some item

Marginal changes

Small incremental adjustments to a plan of action.

Market economy

An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.

Market failure

A situation in which a market left on its own fails to allocate resources efficiently.

Externality

The impact of one person’s actions on the well-being of a bystander.

Market power

The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.

Productivity

The quantity of goods and services produced from each hour of a worker’s time.

Inflation

An increase in the overall level of prices in the economy.

Phillips curve

A curve that shows the short-run tradeoff between inflation and unemployment.

Business cycle

Fluctuations in economic activity, such as employment and production.

Circular-flow diagram

A visual model of the economy that shows how dollars flow through markets among households and firms.

Production possibilities frontier

A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

Microeconomics

The study of how households and firms make decisions and how they interact in markets.

Macroeconomics

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Positive statements

Claims that attempt to describe the world as it is.

Normative statements

Claims that attempt to prescribe how the world should be.

Absolute advantage

The comparison among producers of a good according to their productivity.

Comparative advantage

The comparison among producers of a good according to their opportunity cost.

Imports

Goods produced abroad and sold domestically.

Exports

Goods produced domestically and sold abroad.

Principle #1

People Face Tradeoffs

Principle #2

The Cost of Something Is What You Give Up to Get It

Principle #3

Rational People Think at the Margin

Principle #4

People Respond to Incentives

Principle #5

Trade Can Make Everyone Better Off

Principle #6

Markets Are Usually a Good Way to Organize Economic Activity

Principle #7

Governments Can Sometimes Improve Market Outcomes

Principle #8

A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services

Principle #9

Prices Rise When the Government Prints Too Much Money

Principle #10

Society Faces a Short-Run Tradeoff between Inflation and Unemployment