Ap Econ Ch. 3-4

Front 1

the value of the best alternative that is forgone when choosing an item or activity

Back 1

opportunity cost

Front 2

a cost that has already been incurred in the past, cannot be recovered, and thus is irrelevant for present and future economic decisions

Back 2

sunk cost

Front 3

states that the individual with the lowest opportunity cost of producing a particular output should specialize in producing that output

Back 3

law of comparative advantage

Front 4

the ability to produce something using fewer resources than other producers use

Back 4

absolute advantage

Front 5

the ability to produce something at a lower opportunity cost than other producers face

Back 5

comparative advantage

Front 6

the direct exchange of one good for another without using money

Back 6

barter

Front 7

organizing production of a good into its separate tasks

Back 7

division of labor

Front 8

focusing work effort on a particular product or a single task

Back 8

specialization of labor

Front 9

four assumptions when calculating the economy's production abilities

Back 9

1. two broad categories of products: consumer and capital (physical and human)
2. focus on a given period (ie. year)
3. resources have fixed quality and quantity
4. technology doesn't change

Front 10

a curve showing alternative combinations of goods that can be produced when available resources are used fully and efficiently; a boundary between inefficient and unattainable combinations

Back 10

production possibilities frontier (PPF)

Front 11

the condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another

Back 11

efficiency

Front 12

to produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed if the economy's resources are already being used efficiently

Back 12

law of increasing opportunity cost

Front 13

an increase in the economy's ability to produce goods and services; an outward shift of the production possibilities frontier

Back 13

economic growth

Front 14

the set of mechanisms and institutions that resolve the what, how, and for whom questions

Back 14

economic system

Front 15

some criteria used to distinguish among economic systems

Back 15

1. who owns the resources
2. what decision-making process is used to allocate resources and products
3. what types of incentives guide economic decision makers

Front 16

an economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets

Back 16

pure capitalism

Front 17

an owner's right to use, rent, or sell resources or property

Back 17

private property rights

Front 18

flaws of pure capitalism

Back 18

1. no central authority to enforce rules
2. no help for those without resources
3. monopolies
4. harmful side affects (pollution)
5. no incentive for public goods

Front 19

an economic system characterized by the public ownership of resources and centralized planning

Back 19

pure command system

Front 20

flaws in pure command system

Back 20

1. economy running is too complicated for all resources to be used efficiently
2. less incentive for highest efficiency, therefore wasted resources
3. central plans biased toward central planners
4. limited variety of products
5. less personal freedom in economic choices

Front 21

an economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are unregulated and others are regulated

Back 21

mixed system

Front 22

the satisfaction or sense of well-being received from consumption

Back 22

utility

Front 23

cash or in-kind benefits given to individuals as outright grants from the government

Back 23

transfer payments

Front 24

three broad spending categories

Back 24

1. durable goods
2. nondurable goods
3. services

Front 25

four economic decision makers

Back 25

1. households
2. firms
3. government
4. rest of the world

Front 26

someone who reduces transaction costs by contracting for many products rather than one

Back 26

entrepreneur

Front 27

development of large-scale factory production that began in Great Britain around 1750 and spread to the rest of Europe, North America, and Australia

Back 27

Industrial Revolution

Front 28

four advantages of factories

Back 28

1. more efficient division of labor
2. direct supervision of production
3. reduced transportation cost
4. use of bigger machinery

Front 29

economic units formed by profit-seeking entrepreneurs who use resources to produce goods and services for sale

Back 29

firms

Front 30

a firm with a single owner who has the right to all profits and who bears unlimited liability for the firm's debts

Back 30

sole proprietorship

Front 31

a firm with multiple owners who share the firm's profits and bear unlimited liability for the firm's debts

Back 31

partnership

Front 32

a legal entity owned by stockholders whose liability is limited to the value of their stock

Back 32

corporation

Front 33

any increase in the market value of a share that occurs between the time the share is purchased and the time it is sold

Back 33

realized capital gain

Front 34

two types of transfer payments

Back 34

1. cash transfers (monetary payments)
2. in-kind transfers (goods and services, like food stamps)

Front 35

four reasons why household production still exists

Back 35

1. no skills or special resources required
2. avoid taxes
3. reduce transaction costs
4. technological advances increase productivity

Front 36

technological change spawned by the invention of the microchip and the Internet that enhanced the acquisition, analysis, and transmission of information

Back 36

Information Revolution

Front 37

a car program developed by IBM that recognizes speech, sends e-mails, sends and receives voicemail, recognizes lip movements, provides directions, weather conditions, traffic, and flight delays

Back 37

"Butler in a Dashboard"

Front 38

offices with no permanent locations

Back 38

virtual offices

Front 39

a condition that arises when the unregulated operation of markets yields socially undesirable results

Back 39

market failure

Front 40

roles of the government

Back 40

1. enforce rules
2. promote competition
3. regulate monopolies
4. provide public goods
5. deal with externalities
6. more equally distribute income
7. take care of the economy

Front 41

a sole producer of a product for which there are no close substitutes

Back 41

monopoly

Front 42

one firm that can serve the entire market at a lower per-unit cost than can two or more firms

Back 42

natural monopoly

Front 43

a good that is both rival in consumption and exclusive, such as pizza

Back 43

private good

Front 44

a good that, once produced, is available for all to consume, regardless of who pays and who doesn't; such a good is nonrival and nonexclusive, such as national defense

Back 44

public good

Front 45

the two things that private goods are and public goods aren't

Back 45

exclusive and rival in consumption

Front 46

a cost or a benefit that falls on a third party and is therefore ignored by the two parties to the market transaction

Back 46

externality

Front 47

the use of government purchases, transfer payments, taxes, and borrowing to influence economy-wide activity such as inflation, employment, and economic growth

Back 47

fiscal policy

Front 48

regulation of the money supply to influence economy-wide activity such as inflation, employment, and economic growth

Back 48

monetary policy

Front 49

three issues with government

Back 49

1. difficulty in defining government objectives
2. voluntary exchange vs. coercion
3. no market prices

Front 50

taxes that are deducted from paychecks to support Social Security and Medicare

Back 50

payroll taxes

Front 51

those with greater ability to pay, such as those with higher income or those who own more property, should pay more taxes

Back 51

ability-to-pay tax principle

Front 52

those who receive more benefits from the government program funded by a tax should pay more taxes

Back 52

benefits-received tax principle

Front 53

the distribution of tax burden among taxpayers; who ultimately pay the tax

Back 53

tax incidence

Front 54

the tax as a percentage of income remains constant as income increases; also called a flat tax

Back 54

proportional tax

Front 55

the tax as a percentage of income increases as income increases

Back 55

progressive taxation

Front 56

the percentage of each additional dollar of income that goes to the tax

Back 56

marginal tax rate

Front 57

the tax as a percentage of income decreases as income increases

Back 57

regressive taxation

Front 58

the value of a country's exported goods minus the value of its imported goods during a given period

Back 58

merchandise trade balance

Front 59

a record of all economic transactions between residents of one country and residents of the rest of the world during a given period

Back 59

balance of payments

Front 60

foreign money needed to carry international transactions

Back 60

foreign exchange

Front 61

a measure of the price of one currency in terms of another

Back 61

exchange rate

Front 62

a tax on imports

Back 62

tariff

Front 63

a legal limit on the quantity of a particular product that can be exported or imported

Back 63

quota

Front 64

three automakers

Back 64

Big Three (General Motors, Ford, Chrysler)