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AP Micro > UNIT 1 > Flashcards

UNIT 1 Flashcards

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1
Q

What is economics the study of?

A

Economics is the study of scarcity and choice.

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2
Q

What is individual choice

A

Every economic issue involves, at its
most basic level, individual choice—decisions by individuals about what to do and what not to do.

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3
Q

Economy

A

An economy is a system for coordinating a
society’s productive and consumptive
activities.

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4
Q

Market Economy

A

In a market economy, the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions

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5
Q

Property rights

A

Property rights establish ownership
and grant individuals the right to trade
goods and services with each other.

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6
Q

marginal analysis

A

Marginal analysis is the study of the
costs and benefits of doing a little bit
more of an activity versus a little bit less.

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7
Q

resource

A

A resource is anything that can be used
to produce something else.

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8
Q

land

A

Land refers to all resources that come
from nature, such as minerals, timber and
petroleum.

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9
Q

labor

A

Labor is the effort of workers.

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10
Q

capital

A

Capital refers to manufactured goods
used to make other goods and services.

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11
Q

entrepreneurship

A

Entrepreneurship describes the efforts
of entrepreneurs in organizing resources
for production, taking risks to create new
enterprises, and innovating to develop
new products and production processes.

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12
Q

scarce resource

A

A scarce resource is not available in
sufficient quantities to satisfy all the various
ways a society wants to use it.

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13
Q

microeconomics

A

Microeconomics is the study of how
people make decisions and how those
decisions interact.

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14
Q

macroeconomics

A

Macroeconomics is concerned with the
overall ups and downs in the economy.

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15
Q

economic aggregate

A

Economic aggregates are economic
measures that summarize data across
many different markets.

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16
Q

positive economics

A

Positive economics is the branch of
economic analysis that describes the way
the economy actually works.

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17
Q

normative economics

A

Normative economics makes prescriptions
about the way the economy should work.

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18
Q

tradeoff

A

You make a trade-off when you give up
something in order to have something else.

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19
Q

PPC

A

The production possibilities curve
illustrates the trade-offs facing an economy
that produces only two goods. It shows the
maximum quantity of one good that can be
produced for each possible quantity of the
other goods produced.

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20
Q

efficiency

A

An economy is efficient if there is no way to
make anyone better off without making at least one person worse off.

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21
Q

Technology

A

Technology is the technical means for
producing goods and services.

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22
Q

market economy

A

In a market economy, individuals engage in
trade: they provide goods and services to
others and receive goods and services in
return.

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22
Q

gains from trade

A

There are gains from trade: people can get
more of what they want through trade than
they could if they tried to be self-sufficient.

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23
Q

comparative advantage

A

An individual has a comparative
advantage in producing a good or service if
the opportunity cost of producing the good or
service is lower for that individual than for
other people.

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24
specialization
This increase in output is due to specialization: each person specializes in the task that he or she is good at performing.
25
absolute advantage
An individual has an absolute advantage in producing a good or service if he or she can make more of it with a given amount of time and resources. Having an absolute advantage is not the same thing as having a comparative advantage.
26
utility
Utility is a measure of personal satisfaction.
27
util
A util is a unit of utility.
28
marginal utility
The marginal utility of a good or service is the change in total utility generated by consuming one additional unit of that good or service.
29
marginal utility curve
The marginal utility curve shows how marginal utility depends on the quantity of a good or service consumed.
30
principle of diminishing marginal utility
According to the principle of diminishing marginal utility, each successive unit of a good or service consumed adds less to the total utility than does the previous unit.
31
budget constraints
A budget constraint limits the cost of a consumer’s consumption bundle to no more than the consumer’s income.
32
consumers consumption possibilities
A consumer’s consumption possibilities is the set of all consumption bundles that are affordable, given the consumer’s income and prevailing prices.
33
consumer budget line
A consumer’s budget line shows the consumption bundles available to a consumer who spends all of his or her income.
34
optimal consumption bundle
A consumer’s optimal consumption bundle is the consumption bundle that maximizes the consumer’s total utility given his or her budget constraint.
35
marginal utility per dollar
The marginal utility per dollar spent on a good or service is the additional utility from spending one more dollar on that good or service.
36
optimal consumption rule
The optimal consumption rule says that in order to maximize utility, a consumer must equate the marginal utility per dollar spent on each good and service in the consumption bundle.
37
Scarcity
Economics is the study of scarcity. Scarcity is unlimited wants but limited resources.
38
Micro vs macro
Microeconomics is the study of smaller units such as individuals, firms, and markets. Macroeconomics is the study of the large economy as a whole or economic aggregates.
38
tradeoffs
Trade-offs are all the alternatives that we give up when we make a choice.
39
four factors of production
The four factors of production are land, labor, capital, and entrepreneurship.
40
opportunity cost
Opportunity cost is the most desirable alternative given up when you make a choice.
41
utility
Utility refers to satisfaction, while marginal means additional.
42
allocate
To allocate means to distribute.
43
price
Price is the amount the buyer pays, and cost is the amount the seller pays.
44
profit
Profit is calculated as total revenue minus total costs.
45
consumer goods vs capital goods
Consumer goods are created for direct consumption, while capital goods are created for indirect consumption.
46
investments
Investment is the money spent by businesses to improve their production.
47
productivity
Productivity is a measure of efficiency that shows the number of outputs per unit of input.
48
Three Economic Questions include:
1. What goods and services should be produced? 2. How should these goods and services be produced? 3. Who consumes these goods and services?
49
economic system
The economic system is the method used by a society to produce and distribute goods and services.
50
centrally planned economy
In a centrally planned economy (communism), the government owns all the resources and answers all the questions.
51
free market economy
In a free market economy (capitalism), individuals own all the resources and answer all the questions.
52
mixed economy
A mixed economy is a system with free markets and some government intervention, which is the case in the U.S.
53
Why does Productivity create wealth?
Countries with free markets, property rights, and the Rule of Law have historically seen greater economic growth because they are more productive.
54
Production Possibilities Curve
A PPC is a model that shows alternative ways that an economy can use its scarce resources. It shows scarcity, trade-offs, opportunity costs, and efficiency.
55
Ceteris Paribus
All other conditions remain the same.
56
Constant Opportunity Cost
Resources are easily adaptable for producing either good. Straight line PPC.
57
Increasing Opportunity Cost
As you produce more of any good, the opportunity cost will increase. Resources are not easily adaptable to producing both goods. Bowed out (concave) PPC.
58
Three PPC Shifters
1. Changes in resources quantity or quality 2. Changes in technology 3. Changes in trade
59
Capital Goods and Future Growth
Countries that produce more capital goods will have more growth in the future.
60
Specialization and Trade
Countries should trade if they have a relatively lower opportunity cost. Countries should specialize in the good that is cheaper for them to produce (the one in which they have a comparative advantage)
60
Comparative Advantage
The producer with the lowest opportunity cost.
60
Absolute Advantage
The producer that can produce the most output or requires the least amount of inputs.
61
Calculating Comparative Advantage for Output Questions
OOO Output = Other goes Over
62
Calculating Comparative Advantage for Input Questions
IOU Input = Other goes Under
62
Explicit Costs
The traditional out-of-pocket costs associated with making a decision.
63
Terms of Trade
The agreed-upon conditions that would benefit both countries.
64
Implicit Costs
The opportunity costs of making a decision.
65
Cost-Benefit Analysis
The process used to measure the benefits of a decision minus the costs associated with making that decision.
66
Marginal Analysis
Making decisions based on increments.
66
Marginal Utility
The additional satisfaction you get by consuming additional units of goods or services.
67
Law of Diminishing Marginal Utility
As you consume anything, the additional satisfaction that you receive will eventually, start to decrease.
68
MB = MC
You will continue to consume until Marginal Benefit = Marginal Cost
69
Utility Maximizing Rule
The consumer's dollar should be spent so that the marginal utility per dollar of each good equals each other.

AP Micro (4 decks)

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