AP Macro Unit 1: Basic Economic Concepts

Economics focuses on … and how it requires individuals, businesses, and governments to make choices.

Scarcity

The production … curve shows the different combinations of two goods that can be produced using all of a country’s … to the fullest.

Resources; factors of production

The PPC can … outward when there are more resources or more productivity from new …

Shift; technology

Countries that have a … advantage can specialize in the production of specific goods and trade with other countries at lower … costs than if they produce everything on their own.

Comparative; opportunity

Changes in markets can be explained using a … and … graph.

Demand; supply

Scarcity is the idea that individuals and society have unlimited … but limited …

wants/desires; resources

The four factors of production are …

land; labor; capital; entrepreneurship

What is the difference between physical capital and human capital?

Physical capital are tools, machines, or manufacturing equipment used to produce goods and services. Human capital is skill, knowledge, and experience that workers need to produce things.

Products with … opportunity cost have similar resources and result in a straight line PPC.

Constant

Products with … opportunity cost have different resources and result in a bowed out PPC.

Increasing

Inside the curve means

Unemployment or underutilization

On the curve (anywhere on the curve) means

Full Employment or efficient

Outside the curve means

Impossible or unattainable

There are two types of combination advantage questions

Output questions and input questions

Output questions shows

Number of products produced

Input questions shows

The amount of time it takes to produce the product

The law of demand states there is an inverse (or negative) relationship between … and …

Price; quantity demanded

Why is the market demand curve downward sloping?

Byers (consumers) are willing to buy more units when the price falls and less units when the price increases

What are the five shifters of demand?

Tastes and preferences, number of consumers, price of related goods (substitutes and complements), income, future expectations.

The law of supply states there is a direct (or positive) relationship between … and …

Price; quantity supplied

Why is the market supply curve upward sloping?

Higher prices give profit-seeking firms an incentive to produce more output

What are the five shifters of supply?

Prices of resources, number of producers, technology, government action (taxes, subsidies, regulations), expectations of future profit

If market forces begin to return a shortage to equilibrium the quantity demanded will … and quantity supplied will …

Decrease; increase

A change in … does not shift the demand curve or the supply curves. Instead, it moves along the curves

Price

What is the double shift rule?

When two curves shift at the same time, EITHER price or quantity will be indeterminate

When an increase in demand and an increase in supply. What happens to the equilibrium price and quantity?

Price will be indeterminate and quantity will increase