AP Micro -- Unit 1

optimal consumption + opportunity cost

resources

resources

allow us to meet needs and wants

resources are

scarce

types of resources

land, labor, capital

physical capital

tools, equipment, money

human capital

knowledge

opportunity cost

the value of the resources not chosen

absolute advantage

one country produces more/at a faster rate

comparative advantage

produce with less opportunity cost

the production possibilities curve is bowed out because…

resources are not perfect substitutes

economic system

interaction of economic agents meeting needs/wants

market system

resources are privately owned by individuals

resource use/production is driven by self-interest

people without resources struggle

command system

the government owns and controls all resources

resource use is based on government plan

inefficient and poor

mixed system

elements of market and command

lots of free enterprise with some government regulation

utility

satisfaction from consuming a good/service

diminishing marginal utility

each unit has less marginal utility than the previous

optimal consumption

(MU₁/P₁) = (MU₂/P₂)