AP Econ Module 1-8 Flashcards
Business cycle
The ups-and-downs in output or GDP
The short-run alternation between downturns, or recessions, and economic upturns, expansions
Expansion, contraction, trough, peak
Inflation
An increase in the general level of prices, causes a decrease in purchasing power
Recession
2 consecutive quarters of negative GDP
Both output and employment fall
Efficiency
No lost opportunities; no way to make some people better off without making other people worse off
Resource
Anything that can be used to produce something else
Land, labor, capital, entrepreneurship
Market vs command economy
In market, the decisions of individual producers and consumers determine what to produce
In command, central authority makes production and consumption decisions
Productive efficiency
An economy that produces as much of a good as it can given the production of other goods
Allocative economy
Producing the mix of goods most desired by consumers
Increasing opportunity cost
As more of a good is produced its opportunity cost increases because well-suited inputs are used up and less adaptable inputs must be used instead
Input problem
The input or resource is varied and the output is fixed
Law of demand
The higher the price, the smaller quantity that is demanded. Indirect relationship
Changes in demand
- price of related goods or services (substituted, complements)
- income (normal, inferior, superior goods)
- tastes/trends
- consumer expectations (prices or income)
- number of consumers
Law of supply
As price rises, quantity supplied increases
Direct relationship
Changed in supply
- input/resource prices
- price of related goods or services (substitutes, complements)
- technology
- expectations of future prices
- number of producers
- taxes (decrease supply) or subsidies (increase supply)
Needed for an outward shift of the PPC curve
- more technology
- more research
- better quality of resources
Reasons for law of demand
- Substitution effect (substitute a good that is less expensive for the more expensive one)
- Income Effect (when the price goes down, consumers have more purchasing power and buy more)
Price floor
- Minimum price, set above equilibrium
- Protects suppliers of the good from equilibrium prices too low
- Minimim wage protects suppliers of labor
- Creates permanent surplus
Price ceiling
- Maximum price, below equilibrium
- Protects consumers only
- Only placed on necessities, not luxuries
- Rent control
- Creates permanent shortage
Opportunity cost
The next best alternative given up to do something else
