Ap macro unit 1 test

this is straight from just what I have written down plz lmk if I missed anything! Good luck!

Economics

social science concerned with efficient use of limited resources to achieve maximum satisfaction of economic wants; study of choices

Microeconomics

study of small economic units

Macroeconomics

study of economy as a whole

Theoretical economics

the use of the scientific method to make generalizations in order ot develop theories

Policy economics

the application of theoretical economics to solve problems and meet goals

positive statements

based on fact with little to no value judgements

normative statements

statements that include value judgements

Marginal

additional

Four factors of production

Land, labor, capital, Entrepreneurship

Land

all natural resources used to produce goods and services; anything that comes from mother nature

Labor

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

Physical Capital

human-made resources that is used to create goods/services

Human Capital

any sills or knowledge gained by a worker through education/experience

Entrepreneurship

ambitious leaders that combine the other factors of production to create goods and services; they take the initiative, innovate, and act as risk bearers so they can obtain profit

Accountants

look at explicit costs

Explicit costs

traditional out of pocket costs

Economists

look both explicit and implicit costs

implicit costs

the opportunity costs such as forgone time and forgone income

Production possibilities Curve

a model that shows alternative ways that economy uses scarce resources this model demonstrates scarcity, trade-offs, opportunity costs

4 key assumptions of PPC

• only two goods produced

• full employment resources

• fixed resources

• fixed technology

inefficent

anything below the ppc curve

efficient

anything on the ppc curve

Unattainable

anything past the curve

growth

when the curve shifts to the right

Constant opportunity cost

resources are easily adaptable for producing either good; straight line PPC

Law of increasing opportunity cost

as you produce more of a good, the opportunity cost increases; results in concave PPC

Explanation of the law of increasing opportunity cost

resources are not easily adaptable to produce both goods;

Productive efficency

products being produced in the least costly way

allocate efficancy

the products being produced are the ones most desired by society

three shifters of PPC

-change in resource quantity or quality

-change in technology

-change in trade

technology almost always pushes curve which way?

right

Three economic questions

what goods and services are produced?

how should these goods and services be produced?

who consumes goods and service?

Economic systems

centrally planned, free market, mixed economy, traditional economy,

Communism

• government owns all resources

• decides what to produce, how much to produce, and who will receive it

Capitalism

• little government involvement in economy

• individuals own resources and answer questions

• the opportunity to make profit gives people incentive to produce items

• competition and self interest work together to regulate economy

Invisible Hand

the concept that society’s goals will be met as individuals seek their own self-interest competition and self-interest acts as an invisible hand that regulates the free market

Demand

the different quantities of goods that consumers are willing and able to buy at different prices; not price dependent

Law of demand

there is an inverse relationship between price and quantity demand; Price dependent

Three reasons law of demand occurs

substitution effect, income effect, law of diminishing marginal unity

Substitution effect

If price goes up for a product, customers buy less of that product and more of substitute of product

income effect

If price goes down for a product, the purchasing power increases for consumers, allowing them to purchase more

Law of diminishing marginal unity

the more you use something too much, its satisfaction decreases

Demand curver

a graphical representation of a demand schedule; downward sloping; when reading, all outside factors are constant

5 shifters in demand

tastes and preferences, number of consumers, income, future expectations

Substitutes

goods used in place of others; if price of one increases, demand for the other will increase

Complement

two goods that are bought and used together; if the price of one increases, the demand for the other will fall

Normal goods

more necessity; as income increases demand increases

Inferior goods

as income increases, demand falls and vice versa

Supply

different quantities of a good that sellers are willing and able to sell at different prices

law of supply

direct relationship between price and quantity supplied; as price increases, the quantity producers make increases

Supply rule of thumb

if cost increase, supply decrease

6 shifters of supply

Price/avaliablity of resources

number of sellers

technology

government action

opportunity costs of of Alternative production

expectations of future profits

subsidy

a government payment that supports a business or market, subsidies cause the supply of a good to increase (shifts curve right)

Equilibrium

the price where buyers and sellers agree

Demand Shifts right

Price and Quantity increase

Demand shifts left

Price and Quantity decrease

Supply shifts right

price decreases and quantity increases

Supply shifts left

Price increases and Quantity decreases

Demand and Supply shift right

Price is indeterminate, quantity increases

Demand and Supply shift Left

Price is indeterminate; quantity decreases

Demand shifts Right; Supply shifts Left

Price increases, quantity is indeterminate

Demand shifts left, Supply shifts right

Price falls and Quantity is indeterminate

Voluntary exchange

in free market, buyers and sellers voluntarily come together to seek mutual benefits

consumer surplus

the difference between what you are willing to pay and what you actually pay

Producers surplus

the difference between the price the seller received and how much they are willing to sell it for

Price control (ceiling)

maximum legal price a seller can charge for a product

Price floor

Minimum legal price a seller can charger for a product

Excise taxes

per unit taxes on producers (placed on “dangerous” products)