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AP Microeconomics - Unit 1
Scarcity = Productive resources, land, labor, capital, entrepreneurship.
All are scarce because they are “finite” and they are needed to produce goods and service we want
Wants = Unlimited
Example 1 = WW1 AND WW2, U.S needed to shift many resources. People, food, etc, for war effort.
Diverted from the production of consumer goods
Example 2 = Shortages of PPE during the pandemic. Firms shifted from producing cars to ventilators, etc, to meet demand.
GOODS AND SERVICES ARE NOT SCARCE, IT’S THE RESOURCES USED TO PRODUCE THEM.
Scarcity is the fundamental problem in economics!
Four types of economic resources = land, labor, capital, entrepreneurship.
Land = all resources found in nature. Payment gor the use of land is called RENT.
Labor = Human effort. Payment for the use of labor is called WAGES.
Capital = machinery, tools, equipment, people. Payment for the use of capital is called INTEREST.
Entrepreneurship = innovation, ideas, etc. Payment for entrepreneurship is called PROFIT.
Waste, money, consumer goods, stocks/bonds are NOT considered economic resources.
Animals are always part of LAND!
What goods and services will be produced? How? And who will get these goods and services?
Economies = market, command, and mixed economies.
In a command economy, the government decides what gets produced, how they get produced, and who gets the goods and services.
In a PURE MARKET ECONOMY: What gets produced is decided by individuals. How they get produced is also up to individual producers. The laws of supply and demand determine distribution.
Mixed economies = what gets produced is decided by the government AND the people. Production can be regulated by government. Goods and services are distributed by supply and demand.
Mixed economies Ex = New Zealand, Sweden, Paraguay, etc.
Characteristics of Market economies = Private ownership, market prices, income is an incentive for people, consumer demand, competition, prices fluctuate with supply and demand.
Opportunity cost = what you give up for something else.
Opportunity cost formula: Units lost divided by units gained.
PPC illustrates all production options given current resources. Also used to calculate opportunity cost.
Inside of the curve shows unemployment and inefficient. Anything outside the curve is impossible because we don’t have enough resources. Anything on the curve is full employment/efficient.
If the there are more unemployed people that get a job, the curve stays the same. But if more people get a job, the curve moves outward.
Opportunity costs are not usually constant in the real world.
Curved PPC graph = increasing opportunity cost
Linear PPC graph = decreasing opportunity cost
The PPC shifts outward when there are more resources or mote productivity from new technology.
Comparative Advantage countries specialize in the production of specific goods and trade with other countries at a lower opportunity cost than if they produce things on their own.
Changes in markets can be explained using a supply and demand graph.
Demand: The different quantities that consumers are willing and able to buy at different prices.
Law of Demand: There is an inverse relationship between the price and quantity demand.
The demand curve will shift to the right if there are more buyers. If the good sucks, then the price will lower and the demand will lower as well, causing the line to move to the left.
5 determinants of demand: Tastes and preferences, number of consumers, price of related goods, income.
Price lowering does not shift the demand.
A change in the price causes a change in the quantity demanded.
Supply: The different quantities that producers are willing and able to sell at different prices.
Law of supply: There is a positive relationship between the price and the quantity supplied. Down
5 determinants of supply: prices of resources, number of producers, technology, government intervention, and expectation of future profits. Same fill out every.
Making the product production faster makes the curve shift to the left (increase).
Double Shift Rule: When two curves shift at the same time, either the price or quantity will be indeterminate.
O.O.O Rule = For output questions, to calculate the per unit opportunity cost, put opposite number on top.
I.O.U Rule = For input questions, to calculate the per unit opportunity cost, put opposite number on bottom.
Example 1: THE NUMBER OF CARS OR PLANES THAT CAN BE PRODUCED IN ONE HOUR
Cars Planes | ||
U.S. | 5 | 1 |
Canada | 3 | 2 |
The NUMBER OF PLANES AND CARS in ONE HOUR means it is an OUTPUT question.
U.S:
1 car costs 1/5 of a plane.
1 plane costs 5 cars.
CANADA:
1 car costs 2/3 of a plane.
1 plane costs 3/2 cars.
Example 2: THE NUMBER OF HOURS IT TAKES TO PRDUCE ONE CAR OR PLANE
Cars Planes | ||
U.S. | 5 | 1 |
Canada | 3 | 2 |
The NUMBER OF HOURS it takes to produce ONE car and plane means it is an INPUT question.
U.S:
1 car costs 5 planes
1 plane costs 1/5 of a car
Canada:
1 car costs 3/2 of a plane
1 plane costs 2/3 of a car
AP Microeconomics - Unit 1
Scarcity = Productive resources, land, labor, capital, entrepreneurship.
All are scarce because they are “finite” and they are needed to produce goods and service we want
Wants = Unlimited
Example 1 = WW1 AND WW2, U.S needed to shift many resources. People, food, etc, for war effort.
Diverted from the production of consumer goods
Example 2 = Shortages of PPE during the pandemic. Firms shifted from producing cars to ventilators, etc, to meet demand.
GOODS AND SERVICES ARE NOT SCARCE, IT’S THE RESOURCES USED TO PRODUCE THEM.
Scarcity is the fundamental problem in economics!
Four types of economic resources = land, labor, capital, entrepreneurship.
Land = all resources found in nature. Payment gor the use of land is called RENT.
Labor = Human effort. Payment for the use of labor is called WAGES.
Capital = machinery, tools, equipment, people. Payment for the use of capital is called INTEREST.
Entrepreneurship = innovation, ideas, etc. Payment for entrepreneurship is called PROFIT.
Waste, money, consumer goods, stocks/bonds are NOT considered economic resources.
Animals are always part of LAND!
What goods and services will be produced? How? And who will get these goods and services?
Economies = market, command, and mixed economies.
In a command economy, the government decides what gets produced, how they get produced, and who gets the goods and services.
In a PURE MARKET ECONOMY: What gets produced is decided by individuals. How they get produced is also up to individual producers. The laws of supply and demand determine distribution.
Mixed economies = what gets produced is decided by the government AND the people. Production can be regulated by government. Goods and services are distributed by supply and demand.
Mixed economies Ex = New Zealand, Sweden, Paraguay, etc.
Characteristics of Market economies = Private ownership, market prices, income is an incentive for people, consumer demand, competition, prices fluctuate with supply and demand.
Opportunity cost = what you give up for something else.
Opportunity cost formula: Units lost divided by units gained.
PPC illustrates all production options given current resources. Also used to calculate opportunity cost.
Inside of the curve shows unemployment and inefficient. Anything outside the curve is impossible because we don’t have enough resources. Anything on the curve is full employment/efficient.
If the there are more unemployed people that get a job, the curve stays the same. But if more people get a job, the curve moves outward.
Opportunity costs are not usually constant in the real world.
Curved PPC graph = increasing opportunity cost
Linear PPC graph = decreasing opportunity cost
The PPC shifts outward when there are more resources or mote productivity from new technology.
Comparative Advantage countries specialize in the production of specific goods and trade with other countries at a lower opportunity cost than if they produce things on their own.
Changes in markets can be explained using a supply and demand graph.
Demand: The different quantities that consumers are willing and able to buy at different prices.
Law of Demand: There is an inverse relationship between the price and quantity demand.
The demand curve will shift to the right if there are more buyers. If the good sucks, then the price will lower and the demand will lower as well, causing the line to move to the left.
5 determinants of demand: Tastes and preferences, number of consumers, price of related goods, income.
Price lowering does not shift the demand.
A change in the price causes a change in the quantity demanded.
Supply: The different quantities that producers are willing and able to sell at different prices.
Law of supply: There is a positive relationship between the price and the quantity supplied. Down
5 determinants of supply: prices of resources, number of producers, technology, government intervention, and expectation of future profits. Same fill out every.
Making the product production faster makes the curve shift to the left (increase).
Double Shift Rule: When two curves shift at the same time, either the price or quantity will be indeterminate.
O.O.O Rule = For output questions, to calculate the per unit opportunity cost, put opposite number on top.
I.O.U Rule = For input questions, to calculate the per unit opportunity cost, put opposite number on bottom.
Example 1: THE NUMBER OF CARS OR PLANES THAT CAN BE PRODUCED IN ONE HOUR
Cars Planes | ||
U.S. | 5 | 1 |
Canada | 3 | 2 |
The NUMBER OF PLANES AND CARS in ONE HOUR means it is an OUTPUT question.
U.S:
1 car costs 1/5 of a plane.
1 plane costs 5 cars.
CANADA:
1 car costs 2/3 of a plane.
1 plane costs 3/2 cars.
Example 2: THE NUMBER OF HOURS IT TAKES TO PRDUCE ONE CAR OR PLANE
Cars Planes | ||
U.S. | 5 | 1 |
Canada | 3 | 2 |
The NUMBER OF HOURS it takes to produce ONE car and plane means it is an INPUT question.
U.S:
1 car costs 5 planes
1 plane costs 1/5 of a car
Canada:
1 car costs 3/2 of a plane
1 plane costs 2/3 of a car