AP Macroeconomics Unit 1

Economizing problem

Unlimited wants, limited resources

Resources

Land, labor, capital, entrepreneurial ability

Four assumptions in PPC

• Full employment of resources

• No new technology

• No new resources

• Two goods

Law of Increasing OC

To make one good, increasing amounts of the other will be consumed. They can’t be exchanged 1:1. 

OC

The cost to move to the next unit of a good.

 OC_A in output problems

OC_A = (Change in B) / (Change in A)

OC in input problems

OC_A = (Change in A) / (Change in B)

Point C represents…

Point D represents…

Point C = Underutilization of resources

Point D = Unattainable given current resources

Consumer goods

Consumed upon use

More consumer goods results in what for the economy?

Slower growth rate

Capital goods

Can create more consumer goods 

More capital goods results in what for the economy?

Allocative Efficiency

Producing what society wants

Productive Efficiency

Producing at the lowest possible opportunity cost

What fifth thing do you consider with international trade?

Constant opportunity cost

Absolute advantage

Whoever produces more of a good

Comparative advantage

Whoever produces the good at the lower opportunity cost

Term of trade 

A trade ratio that benefits both sides. 

Traditional economy

Generational techniques/methods

Command economy

Government owns resources and decides the economic questions

Market economy

Individuals own resources and decide economic questions