Ap Macroeconomics Unit 1: Basic Economics

The Basic Economic Problem

The study of the use of limited resources to satisfy unlimited wants.

Macroeconomics

The entire economy.

Microeconomics

Individual firm/industry.

Opportunity Costs

Evaluating what you must give up when a particular choice is made. The next best alternative.

Rational Self Interest

We seek opportunities to maximize our satisfaction amongst the choices we have.

Land

Property and raw materials.

Labor

Workers.

Capital

The stuff and makes other stuff (like an investment).

Physical Capital

Factories, machinery, tools, etc.

Human Capital

Training/education.

Financial Capital

Moneyyyyy.

Entrepreneurial Ability

An innovator/risk taker. Create new products, techniques, or forms of business organizations.

Command Systems

The government plans the economy and handles all business.

Market Systems

Bring together buyers/consumers and sellers/producers.

Demand (Marginal Benefit)

Data showing the various amounts of a product, consumers are willing and able to purchase, at various prices during a specific period of time.

Law of Demand

It is an inverse relationship between price and quantity demanded.

Law of Diminishing Marginal Utility

As you consume more of a good the extra satisfaction declines.

Income Effect

When the price of a good decreases, your relative income increases and you can purchase more and vice versa.

Substitution Effect

At a lower price buyers have incentive to substitute what is now a less expensive product.

Determinants of Demand

Change in demand shifts the entire curve.

Population

The number of buyers either increases (shift right) or decreases (shift left).

Income

Higher income causes an increase in demand.

Expectations

When consumers anticipate an increase in price.

Substitutes and Complements

If the price of a substitute good increase, demand for the other increases.

Supply

The amount of a product a producer is willing and able to produce.

Disaster

Decrease in supply or expectations of future economic conditions.

Inputs

The cost of inputs or resource prices (CELL).

Government

Taxes, subsidies, and regulations.

Surplus

Quantity supplied exceeds quantity demanded.

Shortage

Quantity demanded exceeds quantity supplied.