AP Macroeconomics Vocabulary Terms Questions And Answers
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AP Macroeconomics
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AP Macroeconomics
AP Macroeconomics Vocabulary Terms
Questions And Answers
Maringal Benefit 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 mak...
AP Macroeconomics Vocabulary Terms
Questions And Answers
Maringal Benefit 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
, AP Macroeconomics Vocabulary Terms
Questions And Answers
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
Absolute Advantage 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
, AP Macroeconomics Vocabulary Terms
Questions And Answers
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 Holding all else equal, when the price of a good rises, consumers
decrease their quantity demanded for that good.
All Else Equal to predict how a change in one variable affects a second, we hold all other
variables constant. This is also referred to as the ceteris ceteris paribus assumption
Absolute (Money) Prices The price of a good measured in units of currency
Relative Prices the number of units of any other good Y that must be sacrificed to acquire
the first good X. Only relative prices matter
, AP Macroeconomics Vocabulary Terms
Questions And Answers
Substitution Effect the change in quantity demanded because of a change in the price of
one good relative to the price of other goods.
Income Effect the change in quantity demanded that results from a change in the
consumer's purchasing power (or real income)
Demand Schedule a graphical depiction of the demand schedule. The demand curve
downward sloping, reflecting the law of the demand.
Determinants of Demand Consumer Income
Price of Substitutes
Price of Complements
Consumer Tastes and Preferences
Consumer Expectations and Preferences
Number of Buyers in the Market
Law of Supply Holding all else equal, when the price of a good rises, suppliers increase
their quantity supplied for that good.
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