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AP Macro Unit 1
| Term | Definition |
|---|---|
| Scarcity | economic reality-productive resources/factors of production (those things that must be combined to produce/provide goods/services) are limited/finite (not rare) |
| Productive Resources | land (natural resources, raw materials, energy resources), labor (physical/mental work), and capital (tools, machines, technology) |
| Capital Goods | tools, machines, technology used to make products |
| Consumer Goods | products that households purchase |
| Basic Economic Systems | how societies answer the basic economic questions of: What to produce? How to produce it? For whom to produce? Every economy has some of each type-though one usually is dominant |
| Traditional Economies | questions are answered based on custom and ritual |
| Command Economies | questions are answered by a central authority (usually government) |
| Market Economies | questions are answered based on Supply and Demand (where the interests of producers and consumers intersect) |
| Mixed Economy | most modern economies have a combination of government decision making and free market decisions. |
| Opportunity Costs | the value of the next best alternative when an economic decision is made (the value of what is given up when an economic decision is made) Scarcity implies that societies must make economic choices |
| Production Possibilities Curve (PPC) | illustrates the combination of 2 products that can be produced within existing resources. (Illustrates opportunity costs. How much of one product that has to be given up to produce a certain amount of the other product) |
| PPC Attainable | on the curve and/or inside the curve |
| PPC Unattainable | outside the curve |
| Shifting PPC | creating an entirely new curve (the potential of the person/firm/country has changed) |
| Positive shift (PPC) | outward (or right) |
| Negative Shift (PPC) | inward (or left) |
| Concave Curve (PPC) | increasing opportunity cost |
| Convex Curve (PPC) | decreasing opportunity cost |
| Straight diagonal line (PPC) | constant opportunity cost |
| Productivity | The average amount of products produced by one worker. (average number) Can be improved through increased use of technology and improvements in Human Capital (Education/training etc…) |
| Increase in worker Productivity (PPC) | positive/outward |
| Decrease in worker productivity (PPC) | negative/inward |
| Increase in the size of the Labor force (PPC) | positive/outward |
| Decrease in the size of the Labor force (PPC) | negative/inward |
| Increases in the amount of financial capital that can be invested in production | positive/outward |
| Decreases in the amount of financial capital that can be invested in production | negative/inward |
| Discovery of new natural resources and energy sources | positive/outward |
| Specialization | nations should only produce the products they produce the best |
| Economics | the study of how societies deal with the issue of scarcity |
| Absolute Advantage | the ability of a country to produce more of a produce than another country using the same amount or less amounts of resources, usually measured in labor (output); who makes a product in the least amount of time (input) |
| Comparative Advantage | occurs when a nation produces a product least inefficiently when compared to another nation, based on having the lowest opportunity cost compared to another country (output) |
| Output | based on amount of product produced by one worker in a single day |
| Input | based on the amount of labor hours needed to make one unit of a product |
| Demand | the amount of product/service consumers are willing to purchase at all possible prices |
| Law of Demand | consumers are willing to purchase more of a product/service at lower prices than they are at higher prices |
| Demand Schedule | listing or a chart which shows the amount of a product consumers are willing to purchase at all possible prices |
| Demand Curve | illustrates a demand schedule |
| Substitution Effect | when the price of one produce drops, consumers will substitute it for similar higher priced products (reverse is true) |
| Determinants of Demand | Number of Consumers, Changes in consumer preferences, Changes in the Real Income of Consumers, Changes in the Prices of Related Goods, Future Expectations, Government Policy |
| Complement Effect | If the price of one complement drops, consumers will demand more of the other complement (reverse is true) |
| Real Income | changes in income adjusted for the effects of inflation |
| Future Expectations of Prices | inflationary expectations; if people believe prices will rise significantly in the future there will be an increase in demand for the product in the present (reverse is true) |
| Future Expectations of Employment | if households/consumers believe their incomes will rise in the future, the demand for most products will go up in the present (reverse is true) |
| Transfer Payment | government payments for which it receives no goods or services in return; increases demand for products |
| Elasticity | the degree to which the demand for a product will change due to a change in the price of that product |
| Elastic Products | refers to products whose demand is very sensitive to price changes (large changes in demand due to changes in price) |
| Inelastic Products | refers to products whose demand is not very price sensitive (little or no change in demand due to a change in price (often urgently needed products and/or have no adequate substitutes) |
| Supply | the amount of goods and services businesses are willing to produce/provide at all possible prices |
| Law of Supply | businesses are willing to provide more of a product at higher prices than they are at lower prices |
| Supply Schedule | listing or a chart of the amount of a product that will be supplies at all possible prices |
| Supply Curve | upward sloping illustration of a supply schedule |
| Cost | what businesses pay to produce products |
| Price | what consumers pay for the product |
| Deregulation | reducing government regulation on the economy and businesses; lowers the cost of production and causes an increase in supply |
| Equilibrium Price | price at which demand equals supply (where supply and demand intersect on a graph) |
| Consumer Confidence Index | provides an indication of future developments of households’ consumption and saving based on answers regarding their expected financial situation, their sentiment about the general economic situation, unemployment, and capability of savings |
| Surplus | demand is less than supply; type of disequilibrium |
| Shortage | demand is greater than supply; type of disequilibrium |
| Price Ceiling | a legal maximum on what can be charged for certain products |
| Price Floor | legal minimum that can be charged for certain products |
| Rent Control | the government sets a rent below the market price because the government wants to help provide affordable housing; this can increase demand and decrease supply causing shortage of affordable housing defeating the purpose |
| Determinants of Supply | number of producers of a product, cost of production, productivity, price of substitutes, price of joint products, government regulation, tax policy, and subsidies |
| Price Supports | price subsidies, production limitations, and anything designed to raise prices above the normal market level; usually designed to help specific producers of products (like agriculture) but can lead to an artificial surplus and illegal markets |
| Subsidies | Government payments to businesses for producing certain products. As subsidies rise so does supply. As they are cut supply goes down |
| Efficiency | utilization of all resources; full employment |
| Inefficiency | recession; lower employment |
| Change in Real Income | percent change in wages - rate of inflation = ____ |
Created by:
rcooke
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