AP Microeconomics: Unit 1.1 Vocabulary

Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants (science of scarcity) (study of choices)

We have unlimited wants, but limited resources and that lack of resources forces us to make choices

Study of small economic units such as individuals, firms, and industries (Ex: Supply and Demand in specific markets, production costs, labor markets)

Study of large economy as a whole or economic aggregates (Ex: Economic growth, government spending, inflation, unemployment, international trade)

Economists used scientific method to make generalizations and theories

Theories that are then applied to fix problems or meet economic goals

Statements based on facts. Avoids value judgements. (Tells you what is).

Includes value judgements. (Tells you what ought to be).

1. Society has unlimited wants and limited resources (scarcity)
2. Due to scarcity, choices must be made. Every choice has a cost (a trade-off)
3. Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own self-interest
4. Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice
5. Real-life situations can be explained and analyzed through simplified models and graphs

Additional

Making decisions based on increments (You will continue to do something as long as the marginal benefit is greater than the marginal cost).

All the alternatives that we give up when we make a choice

Most desirable alternative given up when you make a choice

Satisfaction from products

Distribute

Amount the buyer (or consumer) pays for a good (or product)

Amount seller pays to produce said good

The money spent by BUSINESSES to improve their production

Created for direct consumption (Pizza)

Created for indirect consumption; Goods used to make consumer goods. (Oven, Blender, Knives)

Profit = Revenue - Costs

1. Land- All natural resources that are used to produce goods and services (EX: Water, Sun, Plants, and Animals)
2. Labor- Any effort a person devotes to a task for which that person is paid
3. Capital- Physical Capital and Human Capital (see these terms separately)
4. Entrepreneurship- Ambitious leaders that combine the other factors of production to create goods and services

Any human-made resource that is used to create other goods and services

Any skills or knowledge gained by a worker through education and experience

1. Take the Initiative
2. Innovate
3. Act as the Risk Bearers
4. All in order to PROFIT
5. PROFIT= Revenue-Costs