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AP Micro > UNIT 1 > Flashcards

UNIT 1 Flashcards

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
Q

specialization

A

This increase in output is due to
specialization: each person specializes in
the task that he or she is good at performing.

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25
Q

absolute advantage

A

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.

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26
Q

utility

A

Utility is a measure of personal satisfaction.

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27
Q

util

A

A util is a unit of utility.

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28
Q

marginal utility

A

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.

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29
Q

marginal utility curve

A

The marginal utility curve shows
how marginal utility depends on the quantity
of a good or service consumed.

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30
Q

principle of diminishing marginal utility

A

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
Q

budget constraints

A

A budget constraint limits the cost of a
consumer’s consumption bundle to no more
than the consumer’s income.

32
Q

consumers consumption possibilities

A

A consumer’s consumption possibilities
is the set of all consumption bundles that are
affordable, given the consumer’s income and
prevailing prices.

33
Q

consumer budget line

A

A consumer’s budget line shows the
consumption bundles available to a consumer
who spends all of his or her income.

34
Q

optimal consumption bundle

A

A consumer’s optimal consumption
bundle is the consumption bundle that
maximizes the consumer’s total utility given
his or her budget constraint.

35
Q

marginal utility per dollar

A

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
Q

optimal consumption rule

A

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
Q

Scarcity

A

Economics is the study of scarcity. Scarcity is unlimited wants but limited resources.

38
Q

Micro vs macro

A

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
Q

tradeoffs

A

Trade-offs are all the alternatives that we give up when we make a choice.

39
Q

four factors of production

A

The four factors of production are land, labor, capital, and entrepreneurship.

40
Q

opportunity cost

A

Opportunity cost is the most desirable alternative given up when you make a choice.

41
Q

utility

A

Utility refers to satisfaction, while marginal means additional.

42
Q

allocate

A

To allocate means to distribute.

43
Q

price

A

Price is the amount the buyer pays, and cost is the amount the seller pays.

44
Q

profit

A

Profit is calculated as total revenue minus total costs.

45
Q

consumer goods vs capital goods

A

Consumer goods are created for direct consumption, while capital goods are created for indirect consumption.

46
Q

investments

A

Investment is the money spent by businesses to improve their production.

47
Q

productivity

A

Productivity is a measure of efficiency that shows the number of outputs per unit of input.

48
Q

Three Economic Questions include:

A
  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
Q

economic system

A

The economic system is the method used by a society to produce and distribute goods and services.

50
Q

centrally planned economy

A

In a centrally planned economy (communism), the government owns all the resources and answers all the questions.

51
Q

free market economy

A

In a free market economy (capitalism), individuals own all the resources and answer all the questions.

52
Q

mixed economy

A

A mixed economy is a system with free markets and some government intervention, which is the case in the U.S.

53
Q

Why does Productivity create wealth?

A

Countries with free markets, property rights, and the Rule of Law have historically seen greater economic growth because they are more productive.

54
Q

Production Possibilities Curve

A

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
Q

Ceteris Paribus

A

All other conditions remain the same.

56
Q

Constant Opportunity Cost

A

Resources are easily
adaptable for producing either good. Straight line PPC.

57
Q

Increasing Opportunity Cost

A

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
Q

Three PPC Shifters

A
  1. Changes in resources quantity or quality
  2. Changes in technology
  3. Changes in trade
59
Q

Capital Goods and Future Growth

A

Countries that produce more capital goods will have more growth in the future.

60
Q

Specialization and Trade

A

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
Q

Comparative Advantage

A

The producer with the lowest opportunity cost.

60
Q

Absolute Advantage

A

The producer that can produce the most
output or requires the least amount of
inputs.

61
Q

Calculating Comparative Advantage for Output Questions

A

OOO
Output = Other goes Over

62
Q

Calculating Comparative Advantage for Input Questions

A

IOU
Input = Other goes Under

62
Q

Explicit Costs

A

The traditional out-of-pocket
costs associated with making
a decision.

63
Q

Terms of Trade

A

The agreed-upon conditions
that would benefit both
countries.

64
Q

Implicit Costs

A

The opportunity costs of
making a decision.

65
Q

Cost-Benefit Analysis

A

The process used to measure
the benefits of a decision
minus the costs associated
with making that decision.

66
Q

Marginal Analysis

A

Making decisions based on
increments.

66
Q

Marginal Utility

A

The additional satisfaction
you get by consuming
additional units of goods or
services.

67
Q

Law of Diminishing Marginal Utility

A

As you consume anything, the additional satisfaction that you receive will
eventually, start to decrease.

68
Q

MB = MC

A

You will continue to consume until
Marginal Benefit = Marginal Cost

69
Q

Utility Maximizing Rule

A

The consumer’s dollar should be spent so that the marginal utility per dollar of each good equals each other.

AP Micro (3 decks)

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