AP Macroeconomics Unit 1: Basic Economic Concepts

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Human Capital

knowledge or training utilized by workers (labor) in the production of a good.

Ceteris Parabis

"All else remains equal (or the same)"

Laissez Faire

"Let it be" the economic phrase that refers to the government not intervening in a market.

"The Invisible Hand"

Adam Smith's idea economies are driven by profit motive and regulated by competition.

Land

All natural resources used in the production of goods and services

Command Economy

An Economy where the productive resources are allocated by the government.

Entrepreneur

An ambitious business leader who's quest for profit leads them to develop and market new goods and services.

Production Possibilities Curve

An economic model that shows the alternative ways that an economy can utilize it's scarce resources.

Consumer Goods

Any good produced for direct consumption by consumers

Capital Goods

Any good produced for indirect consumption by consumers

Physical Capital

Any man made tool used in the production of a good or a service.

Marginal Analysis

Decisions based upon the additional benefit and additional cost.

Mixed Market Economy

Economy where resources are allocated by private businesses, individuals and varying degrees of government intervention.

Free Market Economy

Economy where the productive resources are allocated by private businesses and individuals. Driven by profit motive.

Investment

Money spend by businesses to improve their production

Productive Efficiency

Products are being produced in the least costly way

Utility

Satisfaction

Positive Statements

Statements based upon facts

Normative Statements

Statements that include value judgements

Microeconomics

The study of the small units within the economy.

Marginal Utility

The additional utility generated from the addition of one more unit of something.

Price

The amount a buyer pays for a good or service

Cost

The amount a producer pays to produce a good or service

Scarcity

The economic condition in which limited resources are met with unlimited wants and needs.

Labor

The human effort provided in the creation of goods and services.

Productive Resources

The land, labor, capital (human and physical), and entrepreneurship used to produce all goods and services.

Opportunity Cost

The most desirable alternative given up when one makes a decision.

Consumer Sovereignty

The power of consumers to decide what gets produced.

Allocative Efficiency

The products being produced are the ones that are most desired by society

Trade-offs

The set of all available alternatives, when one makes a choice.

Economics

The study of how choices are made given the fundamental condition of scarcity.

Macroeconomics

The study of large economic systems.

Allocate

To distribute

Absolute Advantage

When a person, company, or country can produce a good or service at a lower cost than another can.

Comparative Advantage

When a person, company, or country can produce a good or service at a lower opportunity cost than another can.

Shortage

When a producer cannot afford to offer goods or services at current prices.


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