Economics Glossary

Essential Terms for AP Macroeconomics & AP Microeconomics

Explore this glossary of essential terms for Advanced Placement (AP) Macroeconomics and AP Microeconomics. These terms are critical for mastering the concepts and understanding the real-world application of economics. Use this glossary to study and prepare for your exams.

 
 

📘 AP Macroeconomics Glossary

  • Aggregate demand – The total amount of goods and services demanded in the economy at a given overall price level

  • Aggregate price level – A measure of the overall level of prices in the economy

  • Aggregate supply – The total amount of goods and services that firms are willing and able to sell at a given price level in an economy

  • Automatic stabilizers – Economic policies that offset fluctuations in national economic activity without new government intervention

  • Balance of payments – A record of all economic transactions between residents of a country and the rest of the world during a specific time period

  • Business cycle – The natural rise and fall of economic growth over time

  • Consumer price index (CPI) – A measure of average price changes in a fixed basket of goods and services

  • Cost-push inflation – Inflation caused by rising production costs

  • Crowding out – A situation in which increased government spending leads to a decrease in private sector investment or spending due to rising interest rates

  • Deflation – A fall in the general price level across the economy

  • Demand-pull inflation – Inflation that results from aggregate demand exceeding aggregate supply

  • Disposable income – Income available to households after taxes for spending or saving

  • Fiscal policy – Government decisions on taxation and spending to influence economic performance

  • Gross Domestic Product (GDP) – The total value of all goods and services produced in a country

  • Inflation – A general increase in prices across the economy

  • Investment spending – Spending on capital goods like equipment and structures, and changes in inventories

  • Liquid – Describes assets that can be quickly turned into cash without losing value

  • Macroeconomics – The branch of economics concerned with broad economic factors like GDP and inflation

  • Marginal propensity to consume (MPC) – The portion of additional income that a consumer spends

  • Monetary policy – Central bank strategies to influence interest rates and the money supply

  • Purchasing power parity (PPP) – An exchange rate theory where identical goods cost the same across countries

  • Quantity theory of money – A theory linking the money supply directly to price levels

  • Recession – A period of economic decline characterized by falling output and rising unemployment

  • Reserve requirements – The minimum reserves banks must hold as mandated by a central bank

  • Stagflation – A combination of economic stagnation and inflation

📗 AP Microeconomics Glossary

  • Allocative efficiency – When resources are distributed so that marginal benefit equals marginal cost

  • Comparative advantage – The ability to produce a good at a lower opportunity cost than another producer

  • Consumer surplus – The difference between what a consumer is willing to pay and what they actually pay

  • Deadweight loss – Economic inefficiency caused by market intervention or distortions

  • Diminishing returns – When increasing one input leads to smaller increases in output

  • Economic profit – Revenue minus both explicit costs and implicit opportunity costs

  • Economies of scale – Cost advantages gained by producing on a larger scale

  • Equilibrium – The point where supply equals demand

  • Externality – A side effect of an economic activity affecting others not involved in the transaction

  • Gini coefficient – A measure of income inequality within a population

  • Human capital – The skills and knowledge individuals possess that contribute to productivity

  • Income effect – How a change in price affects consumer purchasing power and demand

  • Marginal utility – The additional satisfaction gained from consuming one more unit of a good or service

  • Microeconomics – The study of individual consumers and firms and their decision-making

  • Monopolistic competition – A market with many firms selling differentiated products

  • Monopoly – A market structure with a single producer and no close substitutes

  • Natural monopoly – A market where one firm can supply the entire market at a lower cost

  • Oligopoly – A market dominated by a few large firms

  • Opportunity cost – The value of the next best alternative foregone

  • Perfectly competitive market – A market where no participant has market power and prices are determined by supply and demand

  • Physical capital – Tangible assets, such as machinery or buildings, used in production

  • Price discrimination – Selling the same product to different consumers at different prices, depending on what each is believed to be willing to pay, in order to maximize profit

  • Price elasticity of demand – A measure of how quantity demanded changes in response to price

  • Price elasticity of supply – A measure of how quantity supplied changes in response to price

  • Private good – A good that must be purchased to be consumed, and where one person's use reduces availability for others

  • Producer surplus – The difference between what a seller is paid and their minimum acceptable price

  • Public good – A good that is non-excludable and non-rivalrous

  • Scarce – Limited in supply

  • Substitution effect – How demand shifts when a similar but cheaper product becomes available