AP Macroeconomics Unit 1

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investment

money spent by business to improve production

Complement

good bought and used along with another (Cereal and milk)

Substitutes

good used in place of another (Coke and Pepsi)

consumer good

goods for direct consumption of buyers, cannot be used for anything else

capital good

goods or services used to create more goods and services (CAUSE ECONOMIC GROWTH)

cost

how much seller pays to produce

labor

human effort directed toward producing goods and services for which they are paid

capital (physical)

human made resources used to create other goods/services (tools, tractors, factories)

Double Shift Rule

if 2 curves shift at the same time, either price or quantity will be indeterminate

Income Effect

if price goes down, purchasing power increases for consumers, allowing them to buy more

Substitution Effect

if price goes up for a product, consumers will buy less of it and buy more of a substitute product

Law of Demand

inverse relationship between price and quantity demanded (if price +, quantity -)

entrepreneurship

leaders who combine other factors of production to create goods/services

PPC (Production Possibilities Curve)

A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.

Demand shifters

Buyers, related goods, income, tastes, expectations (BRITE)

Supply Shifters

Technology, input (resources), government (subsidies and taxes), expectations, suppliers (TIGERS)

marginal

additional

trade-off

all alternatives given up when a choice is made

land

all natural resources used to produce goods and services

price

amount a buyer pays

law of diminishing marginal utility

as a good is consumed, additional satisfaction received will decrease overtime

Inferior Good

as income decreases, demand increases

Normal Good

as income increases, demand increases

Law of Supply

direct (+) relationship between price and quantity supplied (price +, quantity +)

allocate

distribute

positive statement

factual claim, "is" statements

Price Ceiling

price is set at a max below equilibrium (causes shortage)

Price Floor

price set at a minimum above equilibrium (causes surplus)

absolute advantage

producer that can produce the most output or requires the least amount of input

comparative advantage

producer with lower opportunity cost

supply

quantities of a good that sellers are willing and able to sell at different prices

shortage

quantity supplied < quantity demanded

surplus

quantity supplied > quantity demanded

utility

satisfaction

economics

science of scarcity, study of choices

capital (human)

skills/knowledge gained by worker through education/experience

opportunity cost

the most desirable alternative given up as the result of a decision

demand

the quantity of a good or service that consumers are willing and able to buy

scarcity

unlimited wants and limited resources

normative statements

value judgements, "should" statements


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