AP MACROECONOMICS
UNIT 1 VOCABULARY
Basic Economic Concepts
26 essential terms, organized by topic and aligned to the official College Board framework.
Scarcity, Cost & the PPC
Term Definition
Scarcity The basic economic problem: unlimited human wants exceed the limited resources
available to satisfy them, forcing choices.
Factors of The resources used to produce goods and services: land, labor, capital, and
production entrepreneurship.
Opportunity cost The value of the next-best alternative given up when a choice is made — the true
cost of any decision.
Production A graph showing the maximum combinations of two goods an economy can produce
Possibilities Curve with fixed resources and technology.
(PPC)
Productive A point on the PPC where an economy is using all its resources fully, producing the
efficiency maximum possible output.
Law of increasing As production of one good rises, the opportunity cost of producing additional units
opportunity cost rises too — the reason the PPC bows outward.
Economic growth An outward shift of the entire PPC, caused by more/better resources or improved
technology.
Ceteris paribus Latin for “all else equal” — the assumption that only one variable changes at a time,
isolating its effect.
Trade & Advantage
Term Definition
Absolute advantage The ability to produce more of a good than another producer using the same amount
of resources.
Comparative The ability to produce a good at a lower opportunity cost than another producer —
advantage the true basis for beneficial specialization.
Specialization Focusing production on the good(s) in which a producer has a comparative
advantage.
UNIT 1 VOCABULARY
Basic Economic Concepts
26 essential terms, organized by topic and aligned to the official College Board framework.
Scarcity, Cost & the PPC
Term Definition
Scarcity The basic economic problem: unlimited human wants exceed the limited resources
available to satisfy them, forcing choices.
Factors of The resources used to produce goods and services: land, labor, capital, and
production entrepreneurship.
Opportunity cost The value of the next-best alternative given up when a choice is made — the true
cost of any decision.
Production A graph showing the maximum combinations of two goods an economy can produce
Possibilities Curve with fixed resources and technology.
(PPC)
Productive A point on the PPC where an economy is using all its resources fully, producing the
efficiency maximum possible output.
Law of increasing As production of one good rises, the opportunity cost of producing additional units
opportunity cost rises too — the reason the PPC bows outward.
Economic growth An outward shift of the entire PPC, caused by more/better resources or improved
technology.
Ceteris paribus Latin for “all else equal” — the assumption that only one variable changes at a time,
isolating its effect.
Trade & Advantage
Term Definition
Absolute advantage The ability to produce more of a good than another producer using the same amount
of resources.
Comparative The ability to produce a good at a lower opportunity cost than another producer —
advantage the true basis for beneficial specialization.
Specialization Focusing production on the good(s) in which a producer has a comparative
advantage.
