AP Economics Unit 1

Fundamentals of Economics

Fundamentals of Economics

Decisions on what goods and services to produce based on needs and resources.

Factors of Production

The resources used in the production of goods and services, including land, labor, capital, and entrepreneurship.

Land

Natural resources utilized in production, such as water and oil.

Labor

The human effort and work involved in creating goods and services.

Capital

The machinery and tools employed in the production process.

Entrepreneurship

Individuals who organize and combine other factors of production to create goods and services for profit.

Trade-offs

The alternatives that are given up when making a decision.

Opportunity Cost

The potential gain lost from other alternatives when one option is chosen.

Production Possibilities Curve (PPC)

A graph that illustrates the production capabilities and opportunity costs of an economy.

Shifts in PPC

The curve can shift right with growth due to increased factors of production or left with shrinkage due to decreased factors.

Factors Affecting Economic Growth

Elements that contribute to the expansion of an economy, including new technology, labor force increases, and new resources.

New Technology

Innovations such as automation and robotics that enhance production efficiency.

Increase in Labor Force

Growth in the workforce due to immigration or demographic changes.

New Resources

The discovery or exploitation of previously untapped resources that can boost production.

The Law of Demand

The principle that price and quantity demanded have an inverse relationship.

Shifts in Demand Curve

Changes in demand influenced by factors such as income, related goods, preferences, and expectations.

Supply

The total amount of a good or service available for purchase.

Law of Supply

The principle that price and quantity supplied have a direct relationship.

Determinants of Supply

Factors that influence production decisions, including the price of related goods, technology, price of resources, number of producers, expectations, and government policies.

Price of Related Goods

The impact of the prices of other goods on production decisions.

Technology

Advances that can reduce production costs and increase efficiency.

Price of Resources

The cost of inputs that affects overall production expenses.

Number of Producers

The level of competition in the market that can influence supply.

Expectations

Anticipated future prices that can affect current supply decisions.

Government Policies

Regulations and taxes that can impact production costs and supply levels.