AP Microeconomics Exam Review

Economics CORRECT ANSWER The study of how people, firms, and societies use their scarce productive resources to best satisfy their unlimited wants Factors of Production CORRECT ANSWER Labor, Land, Capital, Entrepreneurial ability Physical capital CORRECT ANSWER Manmade equipment like machinery, but also buildings, roads, vehicles, and computers Entrepreneurial Ability CORRECT ANSWER The effort and know how to put the other resources (Factors of Production) together in a productive venture Scarcity CORRECT ANSWER The difference between unlimited wants and limited economic resources Trade-offs CORRECT ANSWER The fact that we are faced with scarce resources implies that individuals, firms, and governments are constantly faced with trade-offs Opportunity Cost CORRECT ANSWER The opportunity cost of doing something is what you sacrifice to do it (i.e. if you use a scarce resource to pursue activity X, the opportunity cost of activity X is activity Y, the next best use of that resource) Marginal Analysis CORRECT ANSWER Rational individuals and firms weigh the additional benefits against the additional costs (They think at the margin) Marginal CORRECT ANSWER "th