AP Econ Unit 1

Define scarcity

the limited nature of society's resources

what are sources of production?

land, labor, capital, entrepreneurship

Define capital goods

created for indirect consumption (ex. oven)

Define human capital

the skills and knowledge of workers through experience

what is the difference between trade-offs and opportunity cost?

trade-off = alternatives given up when a decision is made

opportunity cost = most desirable alternative that is given up

how does the PPC illustrate the ideas of scarcity and trade-offs?

PPC shows the alternate ways an economy can use its scarce resources

Why might producing two similar products result in a constant opportunity cost?

resources are easily adaptable

draw a PPC with constant opportunity cost

straight line

why might producing two different products result in an increasing opportunity cost?

Resources are not easily adaptable

draw a PPC with increasing opportunity cost

curved line

Shifters of the production possibilities curve (PPC)

1. resource quantity/quality

2. technology

3. trade

How does the PPC change when workers lose their jobs due to a recession

(Point B = equilibrium) Point D

How does the PPC change when there's an increase in consumer demand for pizza

(Point B = equilibrium) Point A

How does the PPC change when there are more resources to produce cars

curve shifts to the right on the x-axis

(amount) OOO = Output: Other goes Over

Sugar (first number) / Cars (second number)

Cuba: 40 (1S = 1/4C) / 10 (1C = 4S)

Mexico: 50 (1S = 2C) / 100 (1C = 1/2S)

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1.) Which country has an absolute advantage in sugar? How about cars?

2.) What is Cuba's opportunity cost for producing one car?

3.) Which country has a comparative advantage in cars? How about sugar?

4.) For both countries to benefit, how much sugar can be traded for each car? 1 car for ___________ sugar

1.) Mexico for both

2.) 4 tons of sugar

3.) Mexico, Cuba

4.) 2.75 (any number between 1/2 and 4)

(time) IOU = Input: Other goes Under

Sausage (first number) / Computers (second number)

Canada: 2 (1S = 1/3C) / 6 (1C = 3S)

UK: 10 (1S = 1C) / 10 (1C = 1S)

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1.) Which country has an absolute advantage in sausage? How about computers?

2.) What is Canada's opportunity cost for producing one computer?

3.) Which country has a comparative advantage in computers? How about sausages?

4.) For both countries to benefit, how much sausages can be traded for each computer? 1 computer for ___________ sausage

1.) Canada for both

2.) 3 sausages

3.) UK, Canada

4.) 2 (anywhere between 1 and 3)

What is the law of demand?

inverse relationship between price and quantity demanded

Why is the market demand curve downward sloping?

bc the relationship between PL and Qd is inverse

What are the five shifters of demand?

1. Taste and preferences

2. Number of consumers

3. Price of related goods

4. Income

5. Future expectations

What is the law of supply?

direct relationship between price and quantity supplied

Why is the Market Supply Curve upward sloped?

bc at an increased PL, businesses will produce more

What are the five shifters of supply?

1. Price of resources

2. Number of producers

3. Technology

4. Gov actions: taxes and subsidies

5. Expectations

Draw a shortage & surplus

check pic

Draw a demand decrease

Price: decrease

Quantity: decrease

Draw a demand increase

Price: increase

Quantity: increase

Draw a supply decrease

Price: increase

Quantity: decrease

draw a supply increase

Price: decrease

Quantity: increase

what is the double-shift rule?

when 2 curves shift at the same time; either price or quantity will be indeterminable

What happens to the equilibrium price and quantity when there is an increase in demand and an increase in supply

Price: stays the same

Quantity: increase

what is the difference between a change in demand and a change in quantity demanded?

Change in demand = entire demand curve shifts

Change in Qd = movement along the demand curve