ap econ unit 1 quiz

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Opportunity Cost

The cost of the second best option

Resources involved in an economy

Land, Labor, Capital, and Entrepreneurship

Land

The resources within the land. The land itself. Encompasses all resources physically derived from the ground.

Capital

Product used as a tool for something else. This could include a pencil, education, or cargo ships.

Labor

Physical or mental effort used to contribute towards the creation of products.

Entrepreneurship

The action of combining land, capital, and labor into one product.

Underutilization

Having the capabilities to produce more, but not doing so.

Scarcity

Having a limited amount of things to satisfy an unlimited amount of want.

Market economy

Minimal government intervention, the economy and prices are decided by supply and demand. Emphasizes competition as a method of progressing the economy.

ex: if a fish vendor has a sudden influx of customers, he will raise the price to earn more money.

Command Economy

The government controls the economy. Prices are preset by the government and are independent of supply and demand.

ex: a fish vendor receives a price which the government marks fish at. Even if he receives a sudden influx of customers, he will not raise the price. Rather, some customers will simply be without fish as the supply runs out.

Absolute advantage

Having the capability to produce an product more effectively than another group, usually referring to countries.

ex: if country A can produce 100 iphones yearly but country B can only produce 50, country A has the absolute advantage in iphone production.

Comparative Advantage

When it is more worthwhile relative to the costs of other products for one country to produce one product rather than another country to do so.

Price and exporting/importing

The specific cost of items should be determined by the production cost for both countries. It should be beneficial for the exporting country to sell, and should be beneficial for the importing country to buy.

Price and exporting/importing economics example

It costs country A 5 legendary players worth of time to produce one masters player. However, it costs country B 3 legendary players worth of time to produce one masters player. Therefore, it would be acceptable to trade 4 legendary players for 1 masters player as country B to profit(costs 3, but sells for 4) as well as country A to get a cheaper deal(costs 5 to produce, but only 4 to import).

Comparative Advantage Example

If in the time it takes to produce a phone, country A could produce 5 ipads, but for country B it is the opposite, country A holds the comparative advantage for iphone production - it costs less ipads worth of time to produce a specific amount of iphones.

Specialization

When a country or group focuses on producing a specific category of products because they hold the comparative advantage for that product.

Increases in the PPC graph

A group can only increase one of the “axes“(axes = plural axis) of its PPC if they find more resource of find a more efficient way of creating it.

Decreases in the PPC

The PPC can shrink if resources become depleted.

Bowed out curve of PPC

The curve expands outwards, somewhat like a quarter circle centered on the origin. This means that the resources are not perfectly adaptable. as a country specializes more into producing one product, the opportunity cost rises by greater amounts.

Linear PPC graph

The resources are perfectly adaptable for each other. Assume graphs are linear unless stated otherwise.