UNIT 1 AP MICROECONOMICS

Absolute advantage

Exists when a country can produce a good or service at a lower cost than other countries

Accounting profit

An actual outlay or expenses incurred in the production of a good that shows up in a firm’s accounting statements and records.

Adam smith

Father of economics

Capital

One of the four basic categories of resources, or factories of production. It includes the manufactured (or previously produced) resources used to manufacture or produce other things.

Capital goods

Buildings, structures, machines or tools that are used to produce goods and services

Command economy

An economic system controlled by strong, centralized government, which usually focuses on industrial goods. With little attention paid to consumer goods.

Comparative advantage

The ability of a country to produce a good at a lower marginal opportunity cost than another country can. (L-MOP-C)

Consumer goods

Goods produced for present consumption.

Economics

Is the study of how individuals and societies, experiencing virtually limitless wants, choose to allocate their scarce resources to satisfy their wants.

Efficiency

Getting something done with a minimum of effort, expense, or waste

Entrepreneurship

Entrepreneurship is a special sort of human effort that takes on the risk of bringing labor, capital, and land together and organizing production.

Equity (in economics)

A distribution of assets, resources, and tax liability among people in a nation or society that is considered fair and just. While some believe that economic equity requires that all citizens pay the same amount, others believe that the amount paid should depend on the amount that each citizen can afford to pay without undue hardship.

Explicit cost

A cost that involves a Monet payment and usually a market transaction.

This should be contrasted with implicit cost that does not involve a money payment or a market transaction. Explicit cost is also termed out-of-pocket or accounting cost.

Export

Goods leaving a country

Factors of a production

The basic factors used to produce goods and services in the economy—labor, capital, land and entrepreneurship. There are also called resources or scarce resources.

Free market

A market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed

Human capital

The sum total of a person’s productive knowledge experience, and training.

The acquisition of human capital is what makes a person more productive. One of the most notable methods of stocking up on a human capital is through formal education.

Import

Goods entering a country

Implicit cost

An opportunity cost that does NOT involve a money payment or a market transaction.

Incentives

A cost or benefit that motivates a decision or action by consumers, workers, firms or other participants in the economy.

Inefficient

Wasteful of resources, time or energy.

Invisible hand

A phrase coined by Adam Smith to describe the process that turns elf-directed gain into social and economic benefits for all.

Labor

Human effort directed toward producing goods and services

Land

Any natural resource provided by nature and used in the production process

Macroeconomics

A part of economics that looks at the operation of a nation’s economy as a whole.

Marginal analysis

A basic technique used in economics that analyzes small, incremental changes in key variables.

Market

The organized exchange of commodities (goods, services, or resources) between buyers and sellers, within a specific geographic area and during a given time period.

Market economy

An economy that operates by voluntary exchange in a free market and is not planned or controlled by a central authority; a capitalistic economy.

Microeconomics

Study of a single factor of an economy - such as individuals, households, businesses and industries - rather than an economy as a whole.

Mixed economy

An economy in which private enterprises exists in combination with government regulation.

Opportunity cost

The highest-valued alternative that must be given up to engage in an activity.

Production possibilities curve/frontier (PPC)

A curve showing the different combinations of two goods or services that can be produced in a full employment, full-production economy where the available supplies of resources and technology are fixed.

Property rights

Legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable in courts.

Resources

The basic factors used to produce goods and services in the economy— labor, capital, land and entrepreneurship. These are also called factors of production.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Specialization

Development of skills in a specific kind of work

Three basic economic questions

1) what goods and services should be produced.

2) how should the goods and services be produced

3) for when should the goods and services be produced

Trade-off

Alternatives that must be given up when one is chosen over another