AP Macroeconomics Unit 1

when society has unlimited wants, but limited resources, so choices must be made

Study of large economy as a whole/economic aggregates

1) Scarcity exists

2) Trade-offs must be made b/c of scarcity

3) Everyone acts in their self-interest

4) People make decisions by comparing marginal cost

5) Real-life situations can be explained with graphs and charts

making decisions based on increments: when marginal benefit > marginal cost, you should take the opportunity

alternatives that are given up to make a choice

Most desirable alternative given up when a choice is made

satisfaction

additional

Consumer = created for direct consumption

Capital = created for indirect consumption, to make more consumer goods

1) Land

2) Labor

3) Capital (Physical & Human)

4) Entrepreneurship

all natural resources that are used to produce goods & services (ex: water, sun, plants)

any paid-for effort towards a task by a person

any human-made resources used to create other goods/services

any skills or knowledge gained by a worker through education & experience

lenders that combine the other factors of production to create goods & services

1) take initiative

2) innovate

3) act as risk bearers

to earn profits

Revenue - Cost

a measure of efficiency that shows the number of outputs per unit per hour (# output/unit/hour)

• better productivity = more stuff w/ fewer resources

a model that shows the alternate ways an economy can use its scarce resources—demonstrates scarcity, trade-offs, opportunity cost & efficiency

1) only 2 goods can be produced

2) all resources can be utilized

3) fixed resources (ceteris paribus)

4) fixed technology

when the resources needed for 2 goods are relatively similar so the loss of one is equal to the gain of the other

constant opportunity cost

when the resources needed for 2 goods are very different, so as you produce more of one, the opportunity cost of the other keeps increasing

increasing opportunity costs

1) change in resource quantity/quality

2) change in technology

3) change in trade (allows for greater consumption)

Countries that produce more capital goods will have more future growth

(opportunity cost)/units gained

the benefit of one option over the other w/o comparing opportunity cost (producer that makes the most output/needs the least input)

the benefit of one option over the other when comparing opportunity cost (producer w/ lowest OC)

the different quantities of goods that consumers are willing & able to buy @ different prices

there is an inverse relation between price & quantity demanded by nature

as you consumer something, the additional satisfaction that you received will eventually start to decrease

a graphical representation of demand schedule, slopes downward to show inverse relation between price & quantity demanded

results in a change in QUANTITY demanded/supplied (it’s a movement along the curve and doesn’t move the curve itself)

1) related goods (prices of substitutes/complements)

2) income

2) # of consumers

4) income

5) future expectations

if price of one increases and demand of other increases /vice-versa (P1 decrease = D2 decrease)

if price of one falls and demand for other increase /vice-versa (P1 decrease = D2 increase)

when, as income increases, demand increases and vice-versa

when, as income increases, demand decreases and vice-versa

seafood, jewelry, homes

fast food, cup noodles, used clothes

different quantities of a good that sellers are willing & able to sell

there’s a direct relationship between price and quantity supplied

1) resource cost/availability

2) other products (price of related goods)

3) technology

4) taxes & subsidies (govt. action)

5) expectation of future profits

6) number of sellers