Intro to AP Economics

What is Economics?

How resources are used and improved

What does dealing with scarcity entail?

Making the most of what you have

Macroeconomics

Economic problems for a whole nation

Microeconomics

Economic problems for an individual

Positive economics

Scientific theory

Normative economics

Value judgment

What does land refer to

All natural resources

What does labor refer to

All productive human labor

What does capital refer to

Productive equipment

Opportunity Cost

Every gain must come with a loss

Production Possibilities Frontier?

Trade-offs between 2 goods

PPF to Right

Increase resources and technology

PPF to Left

Decrease resources and technology

Law of Increasing Costs

More production equals higher opportunity cost

Comparative Advantage

Producing a good at a lower opportunity cost

Absolute Advantage

Ability to produce more with the same resources

Calculate Opportunity Cost

What you give up/what you produce

What does a lower opportunity cost indicate

More Comparative advantage

What are the fundamental economic questions

What to produce, how to produce, for whom to produce

What are the three types of economic systems

Market economy, command economy, mixed economy

What characterizes a market economy

Decisions made by the people

What characteristics a command economy

Government makes all economic decisions

Key features of command economy

Resources are state owned

Pros of command economy

Fast resource mobilization, income equality

Cons of command economy

Inefficient, lack of motivation

What characterizes capitalism

Production is privately owned

Pros of capitalism

Efficient, economic freedom

Cons of capitalism

Income inequality, market failures

What is allocative efficiency

Resources maximized for welfare

What is the condition for allocative efficiency

Marginal benefit equals marginal cost

What is productive efficiency

Goods produced at the lowest cost

How does allocative efficiency differ from productive efficiency

Allocative efficiency focuses on societal preferences

When does allocative efficiency occur on a supply and demand graph

At equilibrium

What is the main feature of a mixed economy

Blend of capitalism and command economy

What is the CFD

Model of economy and flow of resources

What is the role of households in the CFD

Own resources and spend income

Role of businesses in the CFD

Purchase resources, sell goods and services

What is real flow in the CFD

Physical goods and resources

What is monetary flow in the CFD

Currency exchanges for good and services

What is the role of the government in the CFD

Collect taxes, produce public goods

What is the role of the financial sector in the CFD

Facilitates savings and investments

What is the role of the foreign sector in the CFD

Handles exports and imports