ap macro - UNIT 1

Trade Off

decision making (going to make a decision…not made yet)

opportunity cost

what you gave up when making a choice

efficiency

a society getting the maximum benefits from its scarce resources

equality

where a society’s benefits are districuted evenly among society’s members

Marginal changes

small changes to a plan

incentive

something that induces a person to act

(a higher price leads to buyers having the incentive to buy less, and for sellers to produce more)

trade…

allows each person to specialize in what they are best at.

→ by trading with others, people can buy a greater variety of goods at lower costs.

market

in a group of buyers & sellers

important role for the government

* enforce property rights

externalities

when the production or consumption of a good affect bystanders

market power

government may alter the market outcome to promote equalities

→ ex: differences in paying taxes depending on how rich or poor you are

productivity

\n the amount of goods and services produces per unit of labor

inflation

an increase int eh overall level of prices in the economy

short run

property rights

the ability of an individual to own and excerise control over scarce resources

market failure

a situation in which a market left on its own fails to allocate resources efficiently

market power (ik there’s two but the textbook and mr baird’s definitions were a bit different wtf you want me to do) → (they are basically the same thing except the other one mentions the government specifically idfk man)

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices)

the 2 roles in economy (occupations)

* scientists: try to explain the world
* policy advisors: try to improve it

assumptions

makes things easier to understand

model → you dont need to know this one (probably..?)

a simplified version of reality

\n circular-flow diagram (what is the graph → not what’s on the graph)

a visual model of the economy that shows how dollars flow through markets among households and firms

firms → markets for factors of production

wages, rent and profit

markets for factors of production → households

income

households → markets for goods and services

spending

markets for goods and services → firms

revenue

firms → markets for goods and services

goods and services sold

markets for goods and services → households

goods and services bought

households → markets for factors of production

labor, land and capital

markets for factors of production → firms

factors of production

PPF

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

why are there bow shaped ppf graphs?

because of specialization

points on the PPF line

EFFICIENT levels of production

points above the PPF line

the economy CANT produce the combination of items because of scarcity

points under the PPF line

INEFFICIENT levels of production

a reason for the economy being under the PPF line is..

unemployment

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microeconomics

the study of how households and firms make decisions and how they interact in markets

macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

positive statements

claims that attempt to describe the world as it is

normative statements

claims that attempt to prescribe how the world should be

\n you gon have to review how the ppf graphs work in this chapter cause it easy and i dont want to do THAT much work

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absolute advantage

the ability to produce a good using fewer inputs than another producer

\*\*\*\*\* absolute advantage DOES NOT matter for __TRADE__

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

the price of the trade.

for both parties to gain from trade, the price at which the trade must lie between the two opportunity costs.

imports

goods produced abroad and sold domestically

exports

good produced domestically and sold abroad