AP Macroeconomics: Unit 1

Factors of Production

Land (natural resources)

Labor (workforce)

Capital (manufactured resources)

Entrepreneurship (businesses)

Economics

Balancing scarce resources with unlimited human wants

Opportunity Cost

Highest value alternative forgone

PPC growth factors

Increase in resource availability and technological improvements

Law of Demand

Price and quantity demanded have an inverse relationship

Demand

Consumer’s willingness and ability to purchase a good.

Ceteris paribus

All things are equal and nothing changes

Determinants of Demand

Tastes and preferences of consumer

Related goods

Income!!!

Buyers in the market

Expectations

As price increases…

Demand decreases and supply increases

As price decreases…

Demand increases and supply decreases

Law of supply

There is a positive relationship between price and quantity

Determinants of supply

Number of suppliers

Input prices!!!

Government actions (tariffs, subsides, quotas etc.)

Producer Expectations

Technology

Price ceiling

Benefits consumers but pushes producers out of the market (shortage)

Price floor

Benefits producers but pushes consumers out of the market (surplus)

Producer surplus

Consumer surplus