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Unit 1
AP Microeconomics
Term | Definition |
---|---|
scarcity | the inability of LIMITED RESOURCES to satisfy UNLIMITED WANTS |
types of resources | - land/natural - labor - capital/industrial |
trade-offs | sacrifices made in order to allocate scarce resources |
shortage | the quantity supplied is typically less than the quantity demanded (at the current price) - market price might be too low |
3 essential questions | - what to produce? - how to produce? - for whom to produce? |
positive statements | based on FACTS |
normative statements | value judgments (what OUGHT to be) |
utility | satisfaction |
marginal | change in total (typically additional) |
allocate | distribute |
price | amount CONSUMER pays |
cost | amount SELLER pays to produce a good |
investment | money businesses spend on GOODS to improve production (not stocks or bonds!) |
consumer good | created for DIRECT consumption (ex: pizza) |
capital good | created for INDIRECT consumption (ex: car) |
physical capital | human-made resource to create more goods/services |
human capital | skills/knowledge gained through education/experience |
PPC | production possibility curve |
CFM | circular flow matrix |
private sector | run by INDIVIDUALS and BUSINESSES |
public sector | run by the GOVERNMENT |
transfer payments | when the government redistributes income (ex: welfare, social security) |
subsidies | government payments to BUSINESSES |
four key assumptions | - only TWO goods can be produced - FULL employment of resources - FIXED resources - FIXED technology |
constant opportunity cost | resources are easily ADAPTABLE for producing either good |
law of increasing opportunity cost | as you produce more of any good, the OPPORTUNITY COST will INCREASE - results in BOWED OUT CURVE |
three shifters of the PPC | - change in resource QUANTITY/QUALITY - change in TECHNOLOGY - change in TRADE |
absolute advantage | who can make the most |
comparative advantage | who can make something with the LOWEST OUTPUT |
explicit cost | out-of-pocket costs when making decisions |
implicit costs | opportunity costs of making decisions |
revenue | money brought in by producing a good/servive |
net total benefit | total benefit - total cost |
marginal analysis | decision making based on INCREMENTS |
law of diminishing marginal utility | as you consume something, the additional utility you receive will eventually start to decrease |
law of utility maximization | people will continue to consume until the marginal benefit EQUALS the marginal cost |
utility maximizing equation | MUa/Pa = MUb/Pb |