AP Macroeconomics Unit 1
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