AP Micro: Unit 1

Economics

how individuals choose to allocate limited resources to satisfy unlimited wants

Opportunity Cost

the next best alternative

Scarcity

limited amount of resources and unlimited wants

Land

anything that comes from the earth

Labor

the effort that people devote to a task

Physical capital

man-made goods used to produce goods and services

Entrepreneurship

person who takes on risk to start a business

Production Possibility Curve (PPC)

illustrates the trade-offs facing an economy that produces only two goods

PPC: inefficient point

operating inside the PPC

PPC: Unattainable Point

operating outside the PPC

Human Capital

the knowledge and skills a worker gains through education and experience

Consumer goods

goods produced for present consumption

Example of Physical Capital

Tractor

Example of Human Capital

Computer designers go to college to study engineering, electronics, and computers

Example of Land

minerals inside the earth

Constant Opportunity Cost

Resources are easily adaptable for producing either good

Increasing opportunity cost

Resources are not interchangeable for producing either good

Shape of the PPC with increasing opportunity cost

Bowed out

Shape of the PPC with constant opportunity costs

Straight (linear)

PPC Shifters

change in resources and change in technology

Inward shift of PPC

Loss of resources

Outward shift of the PPC

New technology

Comparative advantage

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

Absolute advantage

the ability to produce more of a good or service than using the same amount of resources

Factors of production

Land, labor, capital, and entrepreneurship; the resources that are used to make all goods and services

Utility

satisfaction

Marginal

additional

MU/P

marginal utility per dollar