AP Macroeconomics 1.1 -1.3 Study Guide

Scarcity

Having unlimited wants but limited resources

Examples of scarce resources

Gasoline, Trees, Clean Water, and Land.

Microeconomics is the study of

a specific economic units such as individuals, firms, and markets. It is a specific part of the economy. (SPECIFIC INDUSTRIES)

Macroeconomics

The study of the large economy as a whole or economic aggregates. It is THE BIG PICTURE. Things like economic growth, government spending, inflation, and unemployment. They all effect the whole economy.

Trade Offs -

all the alternatives that we give up when we make a choice. (Time vs. Money: Working extra hours earns more cash, but leaves less free time for family and rest.)

Opportunity cost

Most desirable alternative given up when you make a choice. What you lose.

utility

satisfaction

marginal

additional

allocate

distribute

price

the amount a buyer pays

cost

amount the seller pays to produce

Investment

The money spent by a business to improve their production

Consumer goods

Think CONSUME. Created for direct consumption. (Example = Pizza or a Smoothie)

Capital Goods

Created for indirect consumption. (Example - Oven, Blender, hammer. (Capital goods make other goods)

Four factors of production

Land, labor, capital, and entrepreneurship

Land

All natural resources that are used to produce goods and services. (water, sun, plants, animal)

Labor

any effort a person devotes to a task for which that person is paid. ( manual labors, lawyers, and doctors)

Physical Capital

Any human made resources that is used to create other goods and services. (Tools and machinery)

Human Capital

Any skills or knowledge gained by a worker through education and experience.

Entrepreneurship

Ambitious leaders that combine the other factors of production to create goods and services. (Henry Ford, Bill Gates, Inventors, store owners)

Productivity

a measure of efficiency that shows the number of outputs per unit of input.

PPC or production possibilities curve

Alternative ways an economy can use it’s scarce resources. This model graphically demonstrates scarcity, tradeoffs, opportunity, and etc.

Constant opportunity cost

Resources are easily adaptable for producing either good.

Increasing opportunity cost

as you produce more of any good the opportunity cost of another will increase.

3 shifts of PPC

• change in resource quantity or quality

• change in technology

• change in trade (allows more consumption)