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AP Macro: Unit 1
Vocabulary from Unit 1
| Term | Definition |
|---|---|
| Scarcity | Unlimited wants exceed limited resources |
| Economics | Study of choices under scarcity. |
| Factors of Production: | Resources used to make goods. |
| Land | Natural resources from nature |
| Labor | Human physical and mental effort |
| Capital | Manufactured goods used to make other goods |
| Physical Capital | Tools, machines, and factories |
| Human Capital: | Worker knowledge and skills |
| Entrepreneurship | Risk-taking business innovation |
| Investment | Business purchase of capital goods |
| Trade-Off | Giving up one thing to get another |
| Opportunity Cost | Value of the next best alternative given up |
| Marginal Benefit: | Extra benefit of an action |
| Marginal Cost | Extra cost of an action |
| Production Possibilities Curve (PPC) | Graph showing combinations of two goods produced. |
| Efficiency | Using resources to maximize output without waste |
| Economic Growth | Increase in an economy's total production capacity |
| Absolute Advantage: | Producing more of a good with same resources. |
| Comparative Advantage | Producing a good at a lower opportunity cost. |
| Specialization | Focusing production on a specific good or task |
| Demand | Willingness and ability of buyers to purchase a good |
| Law of Demand | Price and quantity demanded move inversely |
| Supply | Willingness and ability of firms to sell a good |
| Law of Supply | Price and quantity supplied move directly |
| Equilibrium | Price where quantity demanded equals quantity supplied |
| Shortage | Quantity demanded exceeds quantity supplied |
| Surplus | Quantity supplied exceeds quantity demanded |
| Command Economy | Government controls all production decisions |
| Market Economy | Prices and production driven by private choices |
| Mixed Economy | Blend of market and government control |
| Normal Goods | Goods for which demand increases when consumer income rises (and decreases when income falls), such as restaurant meals or new clothes. |
| Inferior Goods | Goods for which demand decreases when consumer income rises (and increases when income falls), such as instant ramen, public transportation, or used clothing. |
| Substitute Goods | Goods used in place of one another (e.g., iPhone vs. Samsung). An increase in the price of one leads to an increase in demand for the other. |
| Complementary Goods: | Goods used together (e.g., printers and ink cartridges). An increase in the price of one leads to a decrease in demand for the other. |
| Determinants of Demand (Shifters) | Acronym TRIBE is often used to remember them: Tastes/Preferences, Prices of Related goods (substitutes/complements), Income (normal vs. inferior), Buyers (number of consumers), and Expectations of future prices. |
| Law of Diminishing Marginal Utility | As a consumer purchases more units of a good, the additional satisfaction (utility) gained from each consecutive unit decreases. This explains why the demand curve slopes downward. |
| Ceteris Paribus | A Latin phrase meaning "all other things held constant." It is used to isolate the relationship between two specific economic variables (like price and quantity demanded). |
| UtilitUtility | The measure of satisfaction or happiness a consumer gets from consuming a good or service. |
| Incentive | A reward or penalty that motivates behavior or choices |
| Change in Demand (or Supply) | A shift of the entire curve caused by a change in a non-price determinant (e.g., changes in income or tastes) |
| Change in Quantity Demanded (or Quantity Supplied) | A movement along the existing curve caused only by a change in the price of that specific product. |
| Substitution Effect | When the price of a good rises, consumers naturally substitute it with cheaper alternatives, causing the quantity demanded to drop. |
| Income Effect | increase in purchasing power (their money goes further), allowing them to buy more |
| Law of Increasing Opportunity Costs | As production of a good increases, the opportunity cost of producing an additional unit rises. This occurs because resources are not perfectly adaptable to making all goods, giving the Production Possibilities Curve (PPC) its bowed-out shape. |
| Constant Opportunity Costs | Opportunity costs remain unchanged as production increases. This occurs when resources are perfectly adaptable, giving the PPC a straight-line shape |
| Determinants of Supply | Factors that shift the entire supply curve (acronym: STONER). These include Subsidies/Taxes, Technology, Other goods' prices, Number of sellers, Expectations of future prices, and Resource costs (inputs). |
| Price Ceiling | A legal maximum price that sellers are allowed to charge for a good or service. |
| Binding Price Ceiling (opposite no effect) | (opposite no effect) A price ceiling set below the market equilibrium price, preventing the price from rising to equilibrium and resulting in a chronic shortage (Quantity Demanded > Quantity Supplied) |
| Price Floor | A legal minimum price that buyers are required to pay for a good, service, or resource. |
| Binding Price Floor: | (opposite no effect) A price floor set above the market equilibrium price, preventing the price from falling to equilibrium and resulting in a chronic surplus (Quantity Supplied > Quantity Demanded) |
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