AP econ unit 1 vocab

1. Absolute Advantage: exists if a producer can produce more of a good than all other producers.
2. Comparative Advantage: a producer has comparative advantage if he can produce a good at lower opportunity
   cost than all other producers.
3. Economic Growth: occurs when an economy’s production possibilities increase.
4. Economics: the study of how people, firms, and societies use their scarce productive resources to best satisfy
   their unlimited material wants.
5. Human capital: the amount of knowledge and skills that labor can apply to the work they do and the general level
   of health that the labor force enjoys.
6. Inferior goods: a good for which high income decreases DEMAND
7. Law of Demand: There is an inverse or indirect relationship between the price of a product and the quantity of
   that product that consumers are willing and able to buy.
8. Law of Supply: There is a direct or positive relationship between the price of a product and the quantity of the
   product supplied by the producer.
9. Marginal Analysis: making decisions based up weighing the marginal benefits and costs of that action.
   10. Marginal Benefit (MB): the additional benefit received from the consumption of the next unit of a good or service.
   11. Marginal Cost (MC): the additional cost incurred from the consumption of the next unit of a good or service.
   12. Marginal: the next unit or increment of an action.
   13. Normal goods: a good for which higher income increases DEMAND
   14. Opportunity Cost: the value of the sacrifice made to pursue a course of action.
   15. Production Possibilities: different quantities of goods that an economy can produce with a given amount of
       scarce resources.
   16. Productive Efficiency: production of maximum output for a given level of technology and resources. All points
       on the PPF are productively efficient.
   17. Productivity: the quantity of output that can be produced per worker in a given amount of time.
   18. Resources: called factors of production, these are commonly grouped into the four categories of labor,
       physical capital, land or natural resources, and entrepreneurial ability. (SUPPLY)
   19. Scarcity: the imbalance between limited productive resources and unlimited human wants. Because
       economic resources are scarce, the goods and services a society can produce are also scarce.
   20. Specialization: when firms focus their resources on production of goods for which they have comparative
       advantage, they are said to be specializing.
   21. Substitute goods: two goods are consumer substitutes if they provide essentially the same utility to the consumer.
   22. Substitution effect: the change in QDemanded resulting from a change in the price of one good relative to the
       price of other goods.
   23. Technology: a nation’s knowledge of how to produce goods in the best possible way.
   24. Trade-offs: scarce resources imply that individuals, firms, and governments are constantly faced with
       difficult choices that involve benefits and costs.
   25. Utility: The use or satisfaction that a good or service provides to a consumer.

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