AP Microeconomics Unit 1 Basic
Economic Concepts
scarcity - answersunlimited wants, but limited resources
economics - answersthe study of choices a society makes in response to scarcity
mircoeconomics - answersthe study of small economic units
macroeconomics - answersthe study of the large economy as a whole
theoretical economics - answersthe use of the scientific method to make generalizations
and abstractions to develop theories
policy economics - answersthe application of theoretical economics by governments to
create policies that are then applied to fix problems or meet economic goals
value judgements - answersopinion based judgements
positive statements - answersbased on facts, avoids value judgement; what is
normative statements - answersincludes value judgement, opinions; what ought to be
5 key economic assumptions - answers1. 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
marginal - answersadditonally
marginal analysis - answersmaking decisions based on increments; thinking on the
margin
marginal benefit - answersadditional satisfaction that comes from consumting a good or
service; maximum amount we are willing to pay to get that additional benefit; must
outweigh the marginal cost
marginal cost - answersthe change in total cost that comes from producing an extra
product; can be either added or subtracted
trade-offs - answersall of the alternatives that are given up when a choice is made; all
decisions involve _____________
opportunity cost - answersthe most desirable alternative given up when a choice is
made
utility - answerssatisfaction
allocate - answersdistribute
price - answersamount consumer pays
cost - answersamount seller pays to produce a good
investment - answersthe money spent by businesses to improve their production; ex.
moving to SC for cheap taxes
consumer goods - answerscreated for direct consumption
capital goods - answersgoods used to create consumer goods, indirect consumption
4 Factors of Production - answers1. land
2. labor
3. capital (2 types)
4. entrepreneurship
land (factor of production) - answersall natural resources that are used to produce
goods and services
- ex. water, sun, plants, animals
Economic Concepts
scarcity - answersunlimited wants, but limited resources
economics - answersthe study of choices a society makes in response to scarcity
mircoeconomics - answersthe study of small economic units
macroeconomics - answersthe study of the large economy as a whole
theoretical economics - answersthe use of the scientific method to make generalizations
and abstractions to develop theories
policy economics - answersthe application of theoretical economics by governments to
create policies that are then applied to fix problems or meet economic goals
value judgements - answersopinion based judgements
positive statements - answersbased on facts, avoids value judgement; what is
normative statements - answersincludes value judgement, opinions; what ought to be
5 key economic assumptions - answers1. 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
marginal - answersadditonally
marginal analysis - answersmaking decisions based on increments; thinking on the
margin
marginal benefit - answersadditional satisfaction that comes from consumting a good or
service; maximum amount we are willing to pay to get that additional benefit; must
outweigh the marginal cost
marginal cost - answersthe change in total cost that comes from producing an extra
product; can be either added or subtracted
trade-offs - answersall of the alternatives that are given up when a choice is made; all
decisions involve _____________
opportunity cost - answersthe most desirable alternative given up when a choice is
made
utility - answerssatisfaction
allocate - answersdistribute
price - answersamount consumer pays
cost - answersamount seller pays to produce a good
investment - answersthe money spent by businesses to improve their production; ex.
moving to SC for cheap taxes
consumer goods - answerscreated for direct consumption
capital goods - answersgoods used to create consumer goods, indirect consumption
4 Factors of Production - answers1. land
2. labor
3. capital (2 types)
4. entrepreneurship
land (factor of production) - answersall natural resources that are used to produce
goods and services
- ex. water, sun, plants, animals
