AP Microeconomics unit 1 review

Rival resource

resource that can only be used once by a single person.

non rival resource

a resource that can be used by individuals simultaneously.

positive incentive

expected reward

negative incentive

expected punishment

positive economics

economic analysis based on facts

normative economics

economic analysis based on morals

cost benefit analysis

process of accounting for all potential losses and gains when making a trade off.

net benefit

total benefit - total cost

marginal analysis

examination of a change in additional benefit and change in additional cost from repeated additional action.

marginal benefit

additional benefit from additional unit

marginal cost

additional cost from one additional unit

explicit cost

out of pocket payments that are actually made

implicit cost

value of benefits that are actually made

constant opportunity cost

same opportunity cost between all points in a ppc.

law of increasing opportunity cost

as you produce more of a good, the opportunity cost will increase. resources aren’t easily adaptable.

Absolute advantage

ability to produce more of a good/service with fixed resources

comparative advantage

ability to produce more of a good/service at a lower opportunity cost

marginal utility

additional satisfaction from each additional unit consumed.

law of diminishing marginal utility

additional utility of spending one more dollar on that good or service

consumption possibilities

shows set of possible consumption bundles.

optimal consumption bundle

number of each good that consumed in order to maximize one’s utility.

utility maximization/ optimal consumption rule

to maximize utility, marginal utility per dollar sent must be equal for all goods

output problems

focus on data associated with what each party can produce with a given set of resources, as well as who should specialize in each good.

input problems

focus on how much of a resource is needed to produce one unit of a particular good or service.

How to find total cost?

Multiply cost per unit by each quantity.

How to find marginal cost?

Subtract first total cost with the following total cost, this will give you the marginal cost for the second and not first.

How to find marginal benefit?

Find difference of first total benefit and second total benefit (subtract) this will give you the marginal benefit for the second row and not the first..

The bigger the *blank* the better

net benefit

marginal benefit should be greater than

marginal cost

produce up to where

marginal benefit equals marginal cost.

how to find total net cost

find marginal utility/marginal benefit, then find total cost (price per unit times quantity) and subtract difference, stop until total benefit is bigger than marginal cost with that subtract the difference with total cost.

Producing at a point outside the curve is….

impossible because we do not have the resources to produce there, yet.

producing at a point on the curve is…

efficient because we are using all of our resources to the maximum of our ability.

producing at a point inside the curve is…

inefficient because we are not using all of our resources to the maximum of our ability.

Bowed out ppcs

indicates that there are increasing opportunity costs of production.