Unit 1 AP Macroeconomics

Resources will always be ____

scarce

All modern economies are _______ economies

political

Opportunity cost

The value of the next best alternative that was not chosen

What is the most important factor in building wealth

Time

Invisible hand theory

People pursuing their own self-interest will help society

Free market

Economy with little to no government intervention

Model definition

any simplified version of reality used to better understand a real life situation

What does the slope of the PPC represent

opportunity cost

Constant slope of PPC

constant opportunity cost

Rounded slope of PPC

Increasing opportunity cost

2 general sources of economic growth

increase in availability of resources & improved technology

Absolute advantage

Requires the least amount of input for the most output

Comparative advantage

Lowest opportunity cost to produce 1 unit

Specialization

If 2 countries work together to only produce their item with the lowest opportunity cost

Comparative advantage hack (output)

Other goes over

Comparative advantage hack (input)

Other goes under

Multiple across —> who has comparative advantage (output)

Higher number in first column

Multiple across —> who has comparative advantage (input)

Lower number in first column

Terms of trade

Acceptable deal for countries to trade

Law of demand

All else equal, as price falls, quantity demanded will rise

Factors that change demand

change in taste, # of buyers, income, price of related goods, expectations

Normal goods

Increased income leads to increased demand

inferior goods

increased income leads to decreased demand

Law of supply

All else equal, as price rises, quantity supplied rises

Factors that change supply

Resource prices, technology, taxes/subsidies, price of other goods, expectations, number of sellers

Equilibrium

Where supply and demand are equal

Factors of production

land, capital, labor, entrepreneurship

surplus

difference between Qs and Qd

Shortage

Qd exceeds Qs

Disequilibrium

market price is above or below where Qs=Qd

Demand increases, supply stays the same

price and quantity rises

Demand decreases, supply stays the same

price and quantity fall

supply decreases, demand remains the same

price rises, quantity falls

supply increases, demand remains the same

price falls, quantity rises

Demand increases, supply decreases

price increase, quantity indeterminate

Demand increases, supply increases

Price indeterminate, quantity increase

Demand decreases, supply increases

Price decreases, quantity indeterminate

demand decreases, supply decreases

price indeterminate, quantity decrease