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Unit 1
AP Microeconomics
| Term | Definition |
|---|---|
| scarcity | the inability of LIMITED RESOURCES to satisfy UNLIMITED WANTS |
| types of resources | - land/natural - labor - capital/industrial |
| trade-offs | sacrifices made in order to allocate scarce resources |
| shortage | the quantity supplied is typically less than the quantity demanded (at the current price) - market price might be too low |
| 3 essential questions | - what to produce? - how to produce? - for whom to produce? |
| positive statements | based on FACTS |
| normative statements | value judgments (what OUGHT to be) |
| utility | satisfaction |
| marginal | change in total (typically additional) |
| allocate | distribute |
| price | amount CONSUMER pays |
| cost | amount SELLER pays to produce a good |
| investment | money businesses spend on GOODS to improve production (not stocks or bonds!) |
| consumer good | created for DIRECT consumption (ex: pizza) |
| capital good | created for INDIRECT consumption (ex: car) |
| physical capital | human-made resource to create more goods/services |
| human capital | skills/knowledge gained through education/experience |
| PPC | production possibility curve |
| CFM | circular flow matrix |
| private sector | run by INDIVIDUALS and BUSINESSES |
| public sector | run by the GOVERNMENT |
| transfer payments | when the government redistributes income (ex: welfare, social security) |
| subsidies | government payments to BUSINESSES |
| four key assumptions | - only TWO goods can be produced - FULL employment of resources - FIXED resources - FIXED technology |
| constant opportunity cost | resources are easily ADAPTABLE for producing either good |
| law of increasing opportunity cost | as you produce more of any good, the OPPORTUNITY COST will INCREASE - results in BOWED OUT CURVE |
| three shifters of the PPC | - change in resource QUANTITY/QUALITY - change in TECHNOLOGY - change in TRADE |
| absolute advantage | who can make the most |
| comparative advantage | who can make something with the LOWEST OUTPUT |
| explicit cost | out-of-pocket costs when making decisions |
| implicit costs | opportunity costs of making decisions |
| revenue | money brought in by producing a good/servive |
| net total benefit | total benefit - total cost |
| marginal analysis | decision making based on INCREMENTS |
| law of diminishing marginal utility | as you consume something, the additional utility you receive will eventually start to decrease |
| law of utility maximization | people will continue to consume until the marginal benefit EQUALS the marginal cost |
| utility maximizing equation | MUa/Pa = MUb/Pb |
Created by:
maraschrantz
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