1.1-1.3 AP Microeconomics

Scarcity

we have unlimited wants but limited resources

Economics is the...

science of scarcity & study of choices

Positive Statements

Based on facts. Avoids value judgements (what is).

Normative Statements

Includes value judgements (what ought to be).

Trade-off

Giving up one thing for another

marginal costs

the cost of producing one more unit of a good

Utility

satisfaction

marginal

additional

Allocate

distribute

Price

Amount buyer (or consumer) pays

Cost

Amount seller pays to produce a good

Investment

The money spent by BUSINESSES to improve their production

Consumer Goods (X AXIS)

created for direct consumption (example: pizza)

capital goods (Y AXIS)

created for indirect consumption. (oven, blenders, knives, etc.)

4 factors of production

land, labor, capital, entrepreneurship (CELL nmeonic)

Physical Capital

the human-made objects used to create other goods and services

Human Capital

the skills and knowledge gained by a worker through education and experience

Entrepreneurship

the process of starting, organizing, managing, and assuming the responsibility for a business

Profit =

revenue - cost

Productivity

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

Marginal analysis

analysis that involves comparing marginal benefits and marginal costs

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service

Three economic questions

What to produce? How to produce? For whom to produce?

economic system

method used by a society to produce and distribute goods and services

Command

(Centrally-Planned) Economies

In a centrally planned economy (communism) the government owns all the resources

Examples:

Cuba, North Korea, former Soviet Union,

Communism Positives

Low unemployment - everyone has a job

Great Job Security

- the government doesn't go out of business

Less income inequality

"Free" Health Care

Communism Negatives

No incentive to work harder

No incentive to innovate or come up with good ideas No Competition keeps quality of goods poor.

Corrupt leaders

Few individual freedoms

Free Market System (Capitalist)

Little government involvement in the economy. Individuals OWN resources and answer the three economic questions.

The opportunity to make PROFIT gives people INCENTIVE to produce quality items efficiently.

Wide variety of goods available to consumers.

Competition and Self-Interest work together to regulate the economy (keep prices down and quality up).

Mixed Economies

A system with free markets but also some government intervention.

EX: the US, UK

4 Key Assumptions

only 2 goods can be produced, full employment of resources, fixed resources, fixed technology

production possibilities curve

is a model that shows alternative ways that an economy can use its scarce resources

3 Shifters of the PPC

change in resource quantity or quality, change in technology, change in trade

opportunity cost

whatever must be given up to obtain some item

Constant PPC

trade off consistent (straight line)

Increasing PPC

opportunity costs increase