AP Macro Unit 1

Scarcity

Scarcity

having unlimited wants, but limited resources

4 Factors of Production

Land, Labor, Capital (Physical and Human), Entrepreneurship

Capital Goods

goods made for indirect consumption or that help to make consumer goods (ex. machinery)

Human Capital

skills, knowledge, traits, and experience that make workers more productive (ex. education)

Trade-offs

ALL the options given up when an action is taken

Opportunity

the specific next best alternative

PPC/PPF

Production Possibility Curve (PPC)/Production Possibility Frontier (PPF)

What does the PPC show?

there are a limited number of goods that can be produced due to scarcity; when more of one good is produced, less of the other good is produced

PPC, efficient point

somewhere on the curve/line

PPC, inefficient point

inside of the curve/line

PPC, unattainable point

outside of the curve/line

PPC Shifters

change in resources: quantity or quality, change in technology, increase/decrease in population

Law of Demand

that there is an indirect relationship between price and quantity demanded

5 Shifters of Demand

tastes and preferences, number of consumers, price of related goods, income, future expectations

Law of Supply

that there is a direct (or positive) relationship between price and quantity supplied (as price increases, quantity increases/as price decreases, quantity decreases)

5 Shifters of Supply

price/availability of inputs (resources), number of sellers, technology, government action: taxes and subsidies, expectations of future profit

Double Shift Rule

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

Shortage

when the quantity demanded is greater than the quantity supplied (caused by a decrease in price)

Surplus

when the quantity demanded is less than the quantity supplied (caused by an increase in price)

Absolute Advantage

the producer that can produce the most output OR requires the least amount of inputs (resources)

Comparative Advantage

the producer with the lowest opportunity cost

Output Problems

OOO = Output: Other goes Over

Input Problems

IOU = Input: Other goes Under

Capital Goods & Future Growth

companies that produce more capital goods will have more growth in the future

Normal Goods

as income increases, demand increases/as income falls, demand falls

Inferior Goods

as income increases, demand falls/as income falls, demand increases

Change in Price

DOESN'T SHIFT THE CURVE, it only causes a movement along the curve