AP®︎ Microeconomics: Topic 1.2 Flashcards

Master key terms and definitions for Topic 1.2 of AP Microeconomics – Resource Allocation and Economic Systems to help you prep for quizzes and the AP exam.

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Term

Resource Allocation

Definition

The process of deciding how scarce resources are used to produce and distribute goods and services.

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Resource Allocation
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The process of deciding how scarce resources are used to produce and distribute goods and services.

MKT-1.B
Economic System
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A society's rules, institutions, and incentives for answering the three basic economic questions.

MKT-1.BMKT-1.B.2
Traditional Economy
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An economy guided by customs, inherited roles, and long-standing community practices.

MKT-1.BMKT-1.B.2
Market Economy
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An economy where households and firms make choices through voluntary exchange and prices.

MKT-1.BMKT-1.B.2
Mixed Economy
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An economy combining market decision-making with government regulation and public provision.

MKT-1.BMKT-1.B.2
Invisible Hand
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The idea that self-interested market choices can coordinate economic activity through prices.

MKT-1.BMKT-1.B.2
Prices as Signals
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Changes in prices communicate shortages, surpluses, and consumer preferences to producers and buyers.

MKT-1.BMKT-1.B.2
Institutional Arrangements
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The laws, property rights, organizations, and rules that shape economic decision-making.

MKT-1.BMKT-1.B.2
Coordinating Mechanism
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The method an economy uses to organize production and distribute output, such as prices or government orders.

MKT-1.BMKT-1.B.2
Three Basic Economic Questions
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What goods and services to produce, how to produce them, and who consumes them.

MKT-1.BMKT-1.B.1
Command Economy / Central Planning
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An economy where government planners decide production, resource use, and distribution.

MKT-1.BMKT-1.B.2