AP Economic

What is the fundamental problem in economics according to the notes?

Scarcity exists because human wants for goods, services, and resources exceed what is available.

What are the factors of production in economics?

Land, labor, capital, and entrepreneurship.

What does opportunity cost refer to?

The value of the next best alternative that was not chosen.

What does a Production Possibilities Curve (PPC) illustrate?

Scarcity, trade-offs, opportunity cost, and efficiency.

What does it mean if a point is on the PPC?

It indicates that the production is efficient and attainable.

What signifies a point inside the PPC?

It represents inefficiency where resources are unemployed or underutilized but still attainable.

What indicates a point outside the PPC?

It represents production levels that are unattainable with current resources and technology.

What does increasing opportunity cost mean in relation to the PPC?

As more of one good is produced, increasingly more of the other good must be sacrificed.

What is absolute advantage?

When an entity can produce more of a good or service using the same amount of resources or less.

What is comparative advantage?

When an entity can produce a good or service at a lower opportunity cost than another.

What does the Law of Demand state?

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

What is the shape of the demand curve, and what does it illustrate?

A downward-sloping line illustrating the inverse relationship between price and quantity demanded.

How does a change in price affect quantity demanded versus demand?

A change in price causes movement along the demand curve (change in quantity demanded), while a change in determinants causes the demand curve to shift (change in demand).

What are the determinants of demand represented by the acronym TRI of PE?

Tastes and preferences, Related goods' prices, Income, Population, Expectations.

What is the Law of Supply?

As the price of a good increases, the quantity supplied increases, ceteris paribus.

What is the shape of the supply curve and what relationship does it illustrate?

An upward-sloping line illustrating the direct relationship between price and quantity supplied.

What does an increase in demand signify for price and quantity?

Price increases and quantity increases.

What is price elasticity of demand?

Measures the responsiveness of quantity demanded to a change in price.

What does it mean when PED > 1?

Demand is elastic, meaning quantity demanded changes proportionally more than price.

What is consumer surplus?

The benefit consumers receive from buying a good or service, measured as the difference between what they are willing to pay and what they actually pay.

What creates a shortage in the market?

When the market price is below the equilibrium price, leading to quantity demanded exceeding quantity supplied.

What are price ceilings and what is their effect?

A legal maximum price set below equilibrium that leads to shortages, black markets, and reduced quality.

What is a tariff?

A tax on imported goods that increases the domestic price and reduces the quantity imported.

How does trade affect domestic consumers and producers?

If world price is below domestic equilibrium, consumers gain and producers lose; if above, producers gain and consumers lose.