Ap Micro Unit 1

Economics

The science of scarcity

Scarcity

Unlimited wants but limited resources

MICROeconomics

Study of small economic unites

Positive Statements

Based on facts and avoid value judgement (what is)

Normative Statements

Includes value judgements and opinions (what ought to be)

5 Economic assumptions

1. Scarcity

2. Every choice has a cost or trade-off

3. Everyone acts in self-interest

4. Decisions are made by comparing marginal costs and benefits

5. Real life situations can be modeled with graphs

Utility

Satisfaction

Marginal

Additional

Allocate

Distribute

Firms

Businesses

Investment

Money spent by businesses to improve production

Consumer Goods

Created for direct consumption

Capital Goods

Goods used to make consumer goods

Four Factors of production

Land, labor, capital, entrepreneurship

Land

Natural resources used to make goods and services

Labor

Any effort devoted to a task

Physical capital

Human made resources

Human capital

Knowlege from education and experience

Entrepreneurship

Leaders that combine the factors of production to create goods and services

Profit

Revenue - costs

Productivity

The number of outputs per unit of input

3 Economic questions

1. What should be produced

2. How should they be produced

3. For whom are things produced

Command economy

Communism

Free Market System

Capitalism

Invisible Hand

Invisible flow of the economy that adapts and adjusts without intervention

Mixed economy

A free market with some government intervention

Product Market

Where goods and services are sold to households

Resource Market

Where resources are sold to businesses

Private sector

Part of the economy run by individuals and businesses

Public sector

Part of economy run by government

Factor payments

Payments for factors of production (rent, wages, etc)

Transfer payments

When government redistributes income

Subsidies

Government payment to busninesses