AP Economics

economics

is the science of scarcity

scarcity

we have unlimited wants but limited resources

Economics is the study of choices that people make. what is an example

you must choose between buying shoes or jeans

microeconomics

study of small economic units such as individuals, firms, and markets

macroeconomics

study of large economy as a whole or economic aggregates

theoretical economics

use the scientific method to make generalizations and abstractions to develop theories

policy economics

theories are than applied to fix problems or meet economic goals

postivie statments

based on facts. avoids value

normative statements

opionions

5 key economics assumptions

1. society has unlimted wants and limited resources

2. due to scarcity, choices must be made. every choice has a cost

3. everyones goal is to make choices that maximize their satisfaction. everyone gets their own self-interest

4. everyone makes descions by comparing the marginal cost and marginal benefits of every choice

5. real life situations can be explained and analyzied through simplifyed models and graphs

marginal analysis

making desicions based on increments

trade-offs

all the alternatives that give up when we make a choice

oppornunity cost

most desirable alternative given up when you make a choice

utility

satisfaction

marginal

additonal

allocate

distribute

price

amount buyer (consumer) pays

cost

amount seller pays to produce product

investment

the money spent by businenesses to improve the product

consumer goods

created for direct consumption

capital goods

created for indirect consumption

every society must answer these questions

1. what goods and services should be produced

2. how should goods and services be produced

3. who consumes these goods and services

four factors of production

land, labor, capital, entrepreneurship

land

all natural resources that rae used to produce goods and services

labor

any effort a person devoted to a task for which that person is paid

physical capital

any human-made resource that is used to create other goods and services

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

productivity

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

the production possibility curve

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

4 key assumptions about production possibliy curve

1. only two goods can be produced

2. full emloyment of resources

3. fixed resources (ceteris paribus)

4. fixed technology

constant opportunity cost

resources are easily adaptable for producing either good

law of increasing opportunity cost

as you produce more of any good, the

3 shifters in ppc

1. change in resource quantity and quality

2. change in technology

3. change in trade

absolute advantage

the producer than can produce the most output or requires the best amount of inputs (resources)

comparative advantage

the producer with the lowest opportunity cost

per unity opportunity cost calculation

opportunity cost/units gained

output questions

the amount of inputs, like time, workers, or other resources, are the same for both countries is different (other goes over)

input questions

the amount of output, like cars, planes, or corn, are the same for both countries. Only the inputs for each country are different