AP Macroeconomics Vocabulary Terms Questions and Correct Answers the Latest Update
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Course
AP Macroeconomics
Institution
AP Macroeconomics
Economics
the study of how people, firms and societies use their scarce productive resources
to best satisfy their unlimited material wants
Resources
called factors of production, these are commonly grouped into the 4 categories of
labor, physical capital, land or natural resources, and en...
AP Macroeconomics Vocabulary
Terms Questions and Correct
Answers the Latest Update
Economics
✓ the study of how people, firms and societies use their scarce productive resources
to best satisfy their unlimited material wants
Resources
✓ called factors of production, these are commonly grouped into the 4 categories of
labor, physical capital, land or natural resources, and entrepreneurial ability
Scarcity
✓ the imbalance between limited productive resources and unlimited human wants.
Because economic resources are scarce, the goods and services a society can
produce are also scarce
Trade Offs
✓ scarce resources imply that individuals, firms, and governments are constantly faced
with difficult choices that involve benefits and costs
Opportunity Cost
✓ the value of the sacrifice made to pursue a course of action
✓ the additional benefit received from the consumption of the next unit of a good or
service
Marginal Cost
✓ the additional benefit received from the consumption of the next unit of a good or
service
Marginal Analysis
✓ making decisions based upon weighing the marginal benefits and costs of that action.
The rational decision maker chooses an action if the MB is greater than or equal to
marginal cost
Production Possibilities
✓ different quantities of goods that an economy can produce with a given amount of
scarce resources. Graphically, the trade-off between the production of two goods is
portrayed as a production possibility curve or frontier (PPF)
Production Possibility Frontier
✓ a graphical illustration that shows the maximum quantity of one good that can be
produced, given the quantity of the other good being produced
Law of Increasing Costs
✓ the more of a good that is produced, the greater the opportunity cost of producing
the next unit of the good
✓ this exists if a producer can produce more of a good than all other producers
Comparative Advantage
✓ a producer has comparative advantage if he can produce a good at lower
opportunity cost than all other producers
Specialize
✓ when firms focus their resources on production of goods for which they have
comparative advantage, they are said to be specializing
Productive Efficiency
✓ Production of maximum output for a given level of technology and resources. All
points on the PPF are productively efficient
Allocative Efficiency
✓ Production of the combination of goods and services that provides the most net
benefit to society. The optimal quantity of a good is achieved when the MB = MC of
the next unit. This only occurs at one point on the PPF
Economic Growth
✓ this occurs when an economy's production possibilities increase. It can be a result of
more resources, better resources, or improvements in technology
Market Economy (Capitalism)
✓ An economic system based upon the fundamentals of private property, freedom,
self-interest, and prices
Law of Demand
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