AP Econ Unit 1 - Economic Concepts

Scarcity

Unlimited wants, limited resources

Economics

Science of scarcity and study of choices

Positive statements

Facts, avoids judgements

Normative statements

Includes opinions

Land

natural resources

Labor

human effort which earns pay

Physical Capital

human-made resource to create goods and services, countries with more experience more future growth

Human Capital

knowledge and skills from school/experience which can increase productivity

Entrepreneurship

leaders combine factors of production to create goods and services and obtain profit

3 Economic questions

What should be produced, How should it be produced, Who will use it

Command economy

government owns all resources, low quality + variety, high cost bc no competition

Free market

individuals own resources, little government involvement, better quality and cheaper bc of competition and incentive to work

Mixed economy

free markets with some government intervention, most countries including US

Constant Opportunity cost

resources are easily adaptable for producing either good

Increasing Opportunity cost

as more of a good is produced, opportunity cost increases since resources are not adaptable for both

Productive efficiency

Products are produced in least costly way, any point on PPC

Allocative efficiency

Products produced are most desired by society, optimal point depends on society’s desires

Absolute advantage

producer that produces most outputs or uses least inputs

Comparative advantage

producer with lowest opportunity cost