AP Economics Ch. 1

Scarcity

The limited nature of society's resources.

Economics

The study of how society manages its scarce resources.

Efficiency

The property of society getting the most it can from its scarce resources.

Equality

The property of distributing economic prosperity uniformly among the members of society.

Opportunity Cost

Whatever must be given up to obtain some item.

Rational People

People who systematically and purposefully do the best they can to achieve their objectives.

Marginal Change

A small incremental adjustment to a plan of action.

Incentive

Something that induces a person to act.

Market Economy

An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.

Property Rights

The ability of an individual to own and exercise control over scarce resources.

Market Failure

A situation in which a market left on its own fails to allocate resources efficiently.

Exernality

The impact of one person's actions on the well-being of a bystander.

Market Power

The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.

Productivity

The quantity of good and services produced from each unit of labor input.

Inflation

An increase in the overall level of prices in the economy.

Business Cycle

Fluctuations in economic activity such as employment and production.

The ability of free markets to reach desirable outcomes, despite the self-interest of market participants.

What does Adam Smith's invisible hand refer to?

The total cash expenditure needed to go to the movie plus the value of your time.

Your opportunity cost of going to a movie is...?

1. Policymakers can alter outcomes by changing punishments or rewards.2. Policies can have unintended consequences.3. Society faces a trade-off between efficiency and equality.

Because people respond to incentives...

Zero

Many movie streaming services set the marginal cost of a movie equal to ______?

All nations are specializing in what they do best.

International trade benefits a nation when...?

1. Protect property rights.2. Correct a market failure due to externalities.3. Achieve a more equal distribution of income.

Governments may intervene in a market economy in order to...?

Some nations have higher levels of productivity.

What is the main reason that some nations have higher average living standards than others?

Lower; Higher

If a central bank uses the tools of monetary policy to reduce the demand for goods and services, the likely result is ________ inflation and _________ unemployment in the short run.