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AP Macro Econ Vocab
1-2nd chapters vocab only!!
| Term | Definition |
|---|---|
| Scarcity | A situation in which unlimited wants exceed the limited resources available to fulfill those wants. |
| Economics | The study of the choices people make to attain their goals, given their scarce resources. |
| Economic model | A simplified version of reality used to analyze real-world economic situations. |
| Market | A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. |
| Marginal analysis | Analysis that involves comparing marginal benefits and marginal costs. |
| Trade-off | The idea that because of scarcity, producing more of one good or service means producing less of another good or service. |
| Opportunity cost | The highest valued alternative that must be given up to engage in an activity. |
| Centrally planned economy | An economy in which the government decides how economic resources will be allocated. |
| Market economy | An economy in which the decisions of households and firms interacting in markets allocate economic resources. |
| Mixed economy | An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources. |
| Productive efficiency | A situation in which a good or service is produced at the lowest possible cost. |
| Allocative efficiency | A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it. |
| Voluntary exchange | A situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction. |
| Equity | The fair distribution of economic benefits. |
| Economic variable | Something measurable that can have different values, such as the wages of software programmers. |
| Positive analysis | Analysis concerned with what is. |
| Normative analysis | Analysis concerned with what ought to be. |
| Microeconomics | The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices. |
| Macroeconomics | The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. |
| Entrepreneur. | An entrepreneur is someone who operates a business. In a market system, entrepreneurs decide what goods and services to produce and how to produce them. |
| Innovation. | An invention is the development of a new good or a new process for making a good. An innovation is the practical application of an invention. |
| Technology. | A firm’s technology is the processes it uses to produce goods and services. |
| Firm, company, or business. | Firms are organizations that produce goods or services for profit, including nonprofits like universities and hospitals, and are often referred to as companies or businesses by economists. |
| Goods. | Goods are tangible merchandise, such as books, computers, or Blu-ray players. |
| Services. | Services are activities done for others, such as providing haircuts or investment advice. |
| Revenue. | A firm’s revenue is the total amount received for selling a good or service. It is calculated by multiplying the price per unit by the number of units sold. |
| Profit | n calculating economic profit, we include the opportunity cost of all resources used by the firm. |
| Household. | A household consists of all persons occupying a home. Households are suppliers of factors of production—particularly labor—used by firms to make goods and services. |
| Factors of production or economic resources. | Firms use factors of production to produce goods and services. The main factors of production are labor, capital, natural resources—including land—and entrepreneurial ability. |
| Capital. | Capital refers to physical capital, which includes manufactured goods that are used to produce other goods and services. Physical capital are computers, factory buildings, machine tools, warehouses, and trucks. |
| Human capital. | Human capital refers to the accumulated training and skills that workers possess. For example, college-educated workers generally have more skills and are more productive than workers who have only high school degrees. |
| Production possibilities frontier (PPF) | A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. |
| Opportunity cost | The highest valued alternative that must be given up to engage in an activity. |
| Trade | The act of buying and selling. |
| Absolute advantage | The ability of and individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources. |
| Comparative advantage | The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. |
| Market | A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. |
| Product markets | Markets for goods—such as computers—and services—such as medical treatment. |
| Factor markets | Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability. |
| Factors of production | The inputs used to make goods and services. |
| Circular-flow diagram | A model that illustrates how participants in markets are linked. |
| Free market | A market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed. |
| Property rights | The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it. |
| Economic growth | The ability of the economy to increase the production of goods and services. |
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