AP MACROECONOMICS UNIT 1

Economics

the study of how individuals, businesses, and governments allocate scare resources to satisfy unlimited wants and needs

Scarcity

the fundamental economic problem that arises because resources are limited while human wants are unlimited

Resources v. Wants

Resources include land, labor, capital, and entrepreneurship

Wants are the desires for goods and services that provide utility and satisfaction

Macroeconomics

the study of the economy as a whole. Focuses on economic aggregates and topics such as government spending, inflation, unemployment, and international trade

Microeconomics

the study of small economic units. Focuses on supply and demand in specific markets production costs, and labor markets

Macro v. Micro Examples

1. The unemployment rate is holding steady at 4.2%

2. The price of gas is rising due to a decrease in the supply of oil

3. A new airline leads to more competition for Delta and American

4. Microsoft will export one million tablets to Germany

1. Macro

2. Micro

3. Micro

4. Macro

Theoretical economics

the scientific method to generalize and make abstractions to develop theories

Policy economics

applying said theories to fix problems or meet economic goals

Positive statement

based on facts and data available at the present time and can be proven true or false

Normative statement

based on opinions and theories ad cannot be proven true or false

Positive vs. Normative Statements Examples

1. The minimum wage in Florida is higher than the minimum wage set by the federal government

2. The minimum wage in Florida should be increased to $15 an hour

3. The real gross domestic product for the United States in 2020 was $20.93 trillion

4. The benefits of the COVID stimulus package far weighed the costs to taxpayers

1. Positive

2. Normative

3. Positive

4. Normative

The goal of rational people is to make decisions that maximize their __________________. Everyone acts in their own "_______________".

satisfaction; self-interest

Since scarcity forces us to make choices, we have to give something up to get something else or make a _____________ which always has an _________________ cost.

trade-off; opportunity

Resources are ___________ used to produce ____________ (goods and services), Resources are also called _______________________________.

inputs; outputs; factors of production

Capital goods

resources used by businesses to product other goods and service (machinery and buildings)

Consumer goods

finished products purchased by individuals for persona consumption (food or clothing)

Factors of Production Definitions

1. Land

2. Labor

3. Physical capital

4. Human capital

5. Entrepreneurship

1. All natural resources

2. Effort applied to production

3. Man-made objects

4. Knowledge needed to do work

5. A risk taker to bring goods and service to make profit

Factors of Production Examples

1. Land

2. Labor

3. Physical capital

4. Human capital

5. Entrepreneurship

1. Trees, fish

2. Physically just doing the job

3. Robots, computers

4. Education, skills, experience

5. S bakery, a tech company

A PPC shows alternative ways that an economy can use its scarce resources and graphically demonstrate the following. . .

scarcity, trade-offs, opportunity costs, productive efficiency, and economic growth

Key assumptions for PPC's

1. Only _____ goods can be produced

2. Full _____________ of resources

3. ___________ resources/ technology

1. two

2. employment

3. Fixed

Constant Opportunity Cost

•Resources are easily adaptable for producing either good

•Results is a straight line PPC

Increasing Opportunity Cost

•Resources are NOT easily adaptable to producing both goods

•Bowed out or concave PPC

Shifters of the PPC

1. Change in resource quantity or quality

2. Change in technology

3. Change in trade

Everyone ________________ in the production of a good or service and trades with others to get things they don't produce for themselves. More access to trade means more choices and a higher ________________________.

specializes; standard of living

Absolute advantage

the ability of a country to produce more of a good or service than a competitor

Comparative advantage

the ability of a country to produce a good or service for a lower opportunity cost than a competitor

Market

any situation where buyers and consumers exchange goods and services

Law of Demand

the quantity demanded of a good shows an inverse relationship with the price of a good when other factors are held constant

If price increases then demand. . .

decreases

If price decreases then demand. . .

increases

Substitution effect

consumers are not willing to pay higher prices if substitutes are available

Income effect

prices determine the purchasing power of your income. Higher prices mean consumers can buy less

The law of Diminishing Marginal Utility

consumers willing to pay less for additional units because they are less useful than the previous unit

Change in demand shifter definitions

1. Market size:

2. Expectations:

3. Related prices:

4. Income:

5: Taste

1. # of consumers

2. the beliefs or predictions that people have about the future of the economy

3. complements and substitutes

4. normal and inferior

5. preference based on taste

Law of supply

illustrates the direct (positive) relationship between price (p) and quantity supply

If price increases then quantity. . .

increases

If price decreases then quantity. . .

decreases

Change in supply shifters

1. Technology:

2. Related prices:

3. Input prices

4. Competition

5. Expectations

2. complements and substitutes

3. anything that is used to produce a good or service

4. # of producers in the market

5. the beliefs or predictions that people have about the future of the economy

Market equilibrium

the point where the quantity of a good or service supplied is equal to the quantity demanded

Surplus

when quantity supplied of a good or service exceeds the quantity demanded at a given price, usually arises when the price is set above the equilibrium level

Shortage

when the quantity demanded of a good or service exceeds the quantity supplied at a given price, this imbalance typically leads to upward pressure for the limited supply available

If both S and D shift at the same time either price or quantity will be. . .

indetermined/ambiguous