AP Macroeconomics Unit 1: Basic Economic Concepts

Question 1

a restriction placed on the amount of a product allowed to enter or leave a country

Answer 1

Quota

Question 2

the study of how people seek to satisfy their needs and wants by making choices

Answer 2

Economics

Question 3

the method used by a society to produce and distribute goods and services

Answer 3

Economic System

Question 4

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

Answer 4

Macroeconomics

Question 5

the study of how households and firms make decisions and how they interact in markets

Answer 5

Microeconomics

Question 6

economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services

Answer 6

Traditional Economy

Question 7

economic system in which decisions on production and consumption of goods and services are based on voluntary exchange

Answer 7

Market Economy

Question 8

an economic system in which the government controls a country’s economy

Answer 8

Command Economy

Question 9

a market-based economic system with limited government involvement

Answer 9

Mixed Economy

Question 10

a situation in which unlimited wants exceed the limited resources available to fulfill those wants

Answer 10

Scarcity

Question 11

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

Answer 11

Opportunity Cost

Question 12

quantity supplied is greater than quantity demanded

Answer 12

Surplus

Question 13

a graph that shows alternative ways to use an economy’s productive resources

Answer 13

Production Possibilites Curve

Question 14

land, labor, capital, entrepreneurship

Answer 14

Factors of Production

Question 15

the value of a particular product compared to the amount of labor needed to make it

Answer 15

Productivity

Question 16

the ability to produce a good using fewer inputs than another producer

Answer 16

Absolute Advantage

Question 17

the ability to produce a good at a lower opportunity cost than another producer

Answer 17

Comparative Advantage

Question 18

a focus on a particular activity or area of study

Answer 18

Specialization

Question 19

consumers buy more of a good when its price decreases and less when its price increases

Answer 19

Law of Demand

Question 20

producers offer more of a good as its price increases and less as its price falls

Answer 20

Law of Supply

Question 21

the point where the quantity supplied is equal to the quantity demanded of a good or service

Answer 21

Equilibrium

Question 22

quantity demanded is greater than quantity supplied

Answer 22

Shortage

Question 23

the cost of producing one more unit of a good

Answer 23

Marginal Cost

Question 24

the benefit from consuming one more unit of a good or service

Answer 24

Marginal Benefit

Question 25

a tax on the production or sale of a good

Answer 25

Excise Tax

Question 26

a tax on imported goods

Answer 26

Tariff

Question 27

government payment to encourage or protect a certain economic activity

Answer 27

Subsidy

Question 28

a maximum price that can be legally charged for a good or service

Answer 28

Price Ceiling

Question 29

a legal minimum on the price at which a good can be sold

Answer 29

Price Floor

Question 30

focuses on facts and what will happen in the economy

Answer 30

Positive Economics

Question 31

makes prescriptions about the way the economy should work

Answer 31

Normative Economics

Question 32

the change in consumption resulting from a change in real income

Answer 32

Income Effect

Question 33

when consumers react to an increase in a good’s price by consuming less of that good and more of other goods

Answer 33

Substitution Effect

Question 34

rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased

Answer 34

Law of Diminishing Marginal Utility