unit 1 AP micro

PPC

a slope showing all combinations of two kinds of goods

Trade off

as you do more one one thing [fortnite] you sacrafice the other [math]

Opportunity Cost [o.c]

what you lose from a descision

[cost of your choice - benefits of your choice]

→ only counts from 1st option not 2nd

[e.g. job 1 coulda paid 20 and job 2 mighta paid 10]

a concave PPC

there is an increase in o.p.c

non-constant o.p.c

non-perfectly adaptable resources

→ occurs in concave slope

linear PPC

a constant rate of o.c being lost

perfectly adaptable resources

constant o.p.c

→ linear slope

Product efficient is in place

Points are on the line

inefficient production

Points are inside the line

It’s out of the bounds of resource availability (impossible)

Dots are outside the line

PPC Chart

A specialization in cake

Point shifts up or down to cake

“Unemployment/ recession” in PPC

Point inwards

“Short run” in PPC

point shift up or down

Loss of resources (e.g land, destructive war, no labor)

Shift inwards

Improved tech for production

Shift out for a single source or both

Increase in resources (e.g. captial goods/labor/land)

Shift out

utility

satisfaction of a good or service from the consumer

Law of diminishing Marginal utility

satisfaction goes down as you consume each additional unit

Law of diminishing Marginal utility

Graph

MU decreases, TU increases at a decreasing rate.

→ when MU reaches negative numbers TU starts to decrease

Utility Maximizing Combinations

formula and Definition

the combination of what you buy for the most amount of MU

MU_{[of product a]} divided by its price = MU_{[of product b]} divided by its price

MU of a sandwich is higher than the soda

how would u answer this

You want more of sandwich [higher MU] and less of the soda [lower MU] bc more utility per dollar makes the most of youre money

MU maximizing combos with budget constraint

find the MU/$ first for each unit, then starting from one pick which is the highest and decide the amount u paid for that MU

then proceed just like that until you reach the max amount of dollars you have

[e.g. $6 budget = two .50$ bananas, one apple 1$, two oranges 2$ ] 

Absolute advantage

given country A and B produce two kinds of goods

Input table

“takes __ to make” or “requires labor/resources”

→ it has resource requirments

output table

“produces __ per__” or “can make __ per acre”

→ is consistent of production resualts

Finding Absolute advantage 

in an output table → determine the bigger #

in an input table → determine the smaller #

to find comparative advantage

will always be the smaller #

[think c for constant]

finding the o.c of each table

output→ other/ it [o for other]

input → it/after [i for it]

determining whether the country benefits in trade 

benefit mutually or individually

If two countries benefit mutually

Q: when do both countries benefit from 1 hr of mopping

1. find O.C of both countries

2. they both benefit when it falls into the range of the two o.c’s

3. ANS: when the vacuuming hrs are between 2-3

If one country Benefits Mutually

Q: includes a trade value above the o.c range of the two countries*

country with the comparative advantage = Benefits

other country = Hurt

If one country Benefits Mutually

Q: includes a trade value below the o.c range of the two countries*

country with comparative advantage = Hurt

other country = Benefits

Allocation systems

are competative and on a first come first serve basis

Economic Systems

“what, how and for whom do we produce”

1. Traditional

2. Market

3. Command Economies [socialism]

Traditional systems

what, how and for whom products are made for is answered by cultural custom

[e.g. Amish/indigenous]

Market systems

what, how and for whom products are made for is answered by individuals

[e.g. private property, buyers and sellers, private ownership of resources = ALL basically capatalism]

Command systems [socialism]

what, how and for whom products are made for is answered by central planners

[e.g. gov ownership of resources, government intervention and no enforcement of property rights

= public schools, parks, roads ]

Marginal

change in total / change in Q

Margin vs Total

total is increasing at a decreasing rate/slope

Margin is positive and decreasing

Margin vs Total

total is increasing and so is the rate

margin is positive and increasing

Margin vs Total

total is increasing at a constant rate

Margin is positive and constant

Margin vs Total

total is decreasing

Margin is negative

Marginal Benefit

change in total benefit

Marginal Cost

change in total cost

[conceptually its like o.c]

Benefit maximizing Behavior

when Marginal Benefit = Marginal Cost

Benefit maximizing

act when

MB > MC

Benefit maximizing

Dont act when

MB < MC

Benefit maximizing

When do we act in this chart?

ANS AS: at Quantity 3, bc 10> 9 [we want]

and 5< 12[we dont want]

MB = MC on a chart

at Qe

Scarcity

inability to satisfy unlimited wants due to limited resources

An item is NOT scare when

theres a negative price [producers pays to rid of it]

obtained without a price

knowlege that is already established

Resource Trade Offs

as Apple uses all their chips to make phones = less chips are used to make laptops

Scarcity vs Shortage

scarcity → less available than ppl desire

shortage → Quantity supplied is less than demand at current price; theres a price increase or we ran out

comparative advantage

Who exports/imports the good?

the one with comparative advantage = exports

the item/country without the comparative advantage = import

is it scarce?

yes if it

1. has a positive price

2. system of allocation

3. less available then wanted

4. has a o.p.c

PPC

specalization and trade

increases the PPC [production] making it possible to have a point outside the line

TVC second formula

add each MC needed

TC second formula

TVC [secondkind] + fixed cost

Ruling of this formula [perfect optimization]

MU_{[of product a]} divided by its price = MU_{[of product b]} divided by its price

purchasing an item as long as u can afford another util should consist of:

1. Picking the higher MU/P

2. no longer purchasing bc we have reached optimization

Which of the following economic systems primarily relies on prices for allocating resources and goods

free market

Mixed System

using both central planners and private owners

implicit cost types

1. lost job opportunities [only the 1st]

2. Renting u missed out on

3. money u invest in ur/others’ company rather than somewhere else