AP Macro - Unit 1: Text. Mod. 1-3 Flashcards
individual choice
decisions by individuals about what to do, which necessarily involve decisions about what not to do
Economy
a system for coordinating a society’s productive and consumptive activities
market economy
the decisions of individual producers and consumers largely determine what, how and for whom to produce, with little gov. involvement in the decisions
command economy
industry is publicly owned and a central authority makes production and consumption deciisons
incentives
rewards/punishments that motivate particular choices
property rights
establish ownership and grant individuals the right to trade goods and services with each other
Marginal Analysis
the study of costs and benefits of doing a little bit more of an activity versus a little bit less
marginal decisions
marginal benefit
marginal cost
- tradeoffs at the margin: doing a lil more v. a lil less
2.the gain from doing something one more time
3.the cost of doing something one more time
The Economy’s Resources/ factors of production
land, labor, capital, entreprenuership
Resource
anything that can be used to produce something else
land and labor resources
land: anything from nature: minerals, timber, petroleum, water
labor: the effort of workers
opportunity cost
true cost= price +opportunity cost
“the real cost”; the value of the next best alternative that you must give up in order to get the item
capital resources and entrepreneurship
Capital: manufactured goods used to make other goods and services: machinery, tools, buildings
Entrepreneurship: risk taking, innovation, the organization of resources for production
Scarce
a scarce resource is not available in sufficient quantities to satisfy all ways a society wants to use it
economic aggregates: GDP
economic measures that summarize data across many different markets.
aggregate: collection/total
= GDP:which measures the total value of all the goods and services produced in a country
Positive Economics
describe the way the economy actually works. descriptive: ‘what is’
Normative economics
saying how the economy SHOULD work. prescription: ‘what should be’
value added tax
national sales tax, which is the main source of government revenue in many european
business cycle
alternation between economic downturns, recessions, and economic upturns: expansions.
(short-run)
recession
period of economic downturn. Output and employment are falling
expansion
“recoveries” period of economic upturn. output and employment rising
depression
very deep and prolonged down turn (last one was in 1930s)
Employment
+
Unemployment
=
labor force
employment: number of people currently working for pay in the economy
unemployment: number of people actively looking for work but aren’t employed
unemployment rate
rate of the labor force that is unemployed
Real GDP
real gross domestic product: inflation-adjusted measure of the value of all goods and services produced in an economy
output
quantity of goods and services produced. Inc. output –> dec. unemployment
aggregate output
the economy’s total production of goods and services for a given time period. (long run)
:real GDP
inflation
deflation
- rising overall price level: cash loses value
- falling overall price level: hold onto your cash! this will hurt a recession b/c no one will want to invest their money that is now valuableer
price stability
overall price level changes slowly if at all. avoids uncertainty: STABLE
economic growth
an increase in the maximum amount of goods and services an economy can produce/ output. LONG RUN
in the long run little bumps are unrecognizable
- expansion of the economy’s production Possibilities (the economy CAN produce more) the curve moves out
Other things Equal Assumption “ceteris paribus assumption”
all other relevant factors remain unchanged
trade-off
give up something to have something else
Production Possibilities Curve (PPC)
illustrates the trade-offs facing an economy that produces only 2 goods. It shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced
*economy preforms better with more employment
-linear line
efficient
an economy reaches this when there is no way to make anyone better off without making at least someone worse off.
productive efficiency
allocative efficiency
1.is achieved by an economy if it produces at a part on its PPC
2.achieved if it produces at the point along its PPC that makes consumers as well off as possible
technology
source of economic growth.
the technical means for producing goods and services
model
a simplified representation used to better understand a real-life situation. i.e. a graph, equation, computer simulation, real but simplified economy
law of increasing opportunity cost
graph similar to PPC, but is a curved line that indicates how as an economy produces more of one product the amount of the alternative they give up is greater
Growth, the long view
Real GDP per capita v. years. In the long run, little ups and downs are not noticeable and its only the great depression and great recession that manage to poke out
