AP Macroeconomics Unit 1: Basic Economic Concepts Flashcards
a restriction placed on the amount of a product allowed to enter or leave a country
Quota
the study of how people seek to satisfy their needs and wants by making choices
Economics
the method used by a society to produce and distribute goods and services
Economic System
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
Macroeconomics
the study of how households and firms make decisions and how they interact in markets
Microeconomics
economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services
Traditional Economy
economic system in which decisions on production and consumption of goods and services are based on voluntary exchange
Market Economy
an economic system in which the government controls a country’s economy
Command Economy
a market-based economic system with limited government involvement
Mixed Economy
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
Scarcity
the most desirable alternative given up as the result of a decision
Opportunity Cost
quantity supplied is greater than quantity demanded
Surplus
a graph that shows alternative ways to use an economy’s productive resources
Production Possibilites Curve
land, labor, capital, entrepreneurship
Factors of Production
the value of a particular product compared to the amount of labor needed to make it
Productivity
the ability to produce a good using fewer inputs than another producer
Absolute Advantage
the ability to produce a good at a lower opportunity cost than another producer
Comparative Advantage
a focus on a particular activity or area of study
Specialization
consumers buy more of a good when its price decreases and less when its price increases
Law of Demand
producers offer more of a good as its price increases and less as its price falls
Law of Supply
the point where the quantity supplied is equal to the quantity demanded of a good or service
Equilibrium
quantity demanded is greater than quantity supplied
Shortage
the cost of producing one more unit of a good
Marginal Cost
the benefit from consuming one more unit of a good or service
Marginal Benefit
a tax on the production or sale of a good
Excise Tax
a tax on imported goods
Tariff
government payment to encourage or protect a certain economic activity
Subsidy
a maximum price that can be legally charged for a good or service
Price Ceiling
a legal minimum on the price at which a good can be sold
Price Floor
focuses on facts and what will happen in the economy
Positive Economics
makes prescriptions about the way the economy should work
Normative Economics
the change in consumption resulting from a change in real income
Income Effect
when consumers react to an increase in a good’s price by consuming less of that good and more of other goods
Substitution Effect
rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased
Law of Diminishing Marginal Utility
