Ap Econ topic 1.1: Scarcity

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Economics

the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants

Microeconomics

study of small economic units, such as individual consumers, families, and businesses

Example: supply and demand in industries. Production costs, labor markets

Macro economics

The study of the economy as a whole like economic growth, government spending, inflation, unemployment, international trade

theoretical economics

use scientific method to make generalizations and abstractions to develop theories

policy economics

Theories are applied to fix problems or meet economic goals

Positive statements

Based on facts. Avoids value judgements (what is).

A rise in average temperatures will likely increase the demand for sunscreen products

normative statement

includes value judgements (what ought to be)

Pollution is the most serious economic problem

Unemployment is more harmful that inflation

Trade-off

Due to scarcity, choices must be made. Every choice has a cost. All the alternative that we give up when we make a choice.

marginal cost

the cost of producing one more unit of a good (marginal = additional)

marginal benefit

the extra benefit of adding one unit

You want the marginal benefit to be greater than the marginal cost

opportunity cost

the most desirable alternative given up as the result of a decision

Utility

satisfaction

Marginal

additional

allocate

to distribute

Price

Amount buyer pays

Cost

Amount seller pays to produce a good

Investment

the money spent by businesses to improve their production

Consumer good

created for direct consumption (pizza)

Capital good

created for indirect consumption (oven, blender, knive). Goods used to make consumer goods.

Four factors of production

land, labor, capital, entrepreneurship

Land

all natural resources used to produce goods and services (water sun plants animals)

Labor

any effort a person devotes to a task for which that person is paid (doctor teacher waiters lawyers)

Capital

Physical capital and human capital

Physical capital

Any human made resource that is used to create goods and services (tool tractor factory building machine)

Human capital

An skill 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