AP Microeconomics: Unit 1 Review

Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants

Micro: deals with small economic units such as individual firms or industries
Macro: deals with economic aggregates or the economy as a whole (inflation, unemployment, international trade, etc.)

Positive: fact-based
Normative: based on value judgements

-society's wants are limited, but resources are unlimited (there is scarcity)
-due to scarcity, choices must be made (trade-offs)
-everyone acts in their own self-interest when making decisions, to maximize their satisfaction
-everyone makes decisions by comparing marginal cost with marginal benefit
-due to scarcity, choices must be made

It is that one makes the decision to continue doing something while its marginal benefit is greater than its marginal cost

Trade-off: all alternatives given up when a decision is made
Opportunity cost: the most desirable alternative given up when a decision is made

Scarcity: occurs all the time for all goods
Shortage: occurs temporarily, when producers don't offer goods/services at current prices

Goods: physical objects used to meet needs and wants
Services: actions or activities that one person performs for another

consumer: created for direct consumption
capital: created for indirect consumption, used to make consumer goods

implicit: opportunity costs
explicit: out-of pocket costs

Accounting looks only at explicit costs, economics looks at both implicit and explicit costs

-land (natural resources)
-labour (effort)
-capital (tools and knowledge)
-entrepreneurship (leaders)

physical capital: human made resources like tools
human capital: skills and knowledge from education and/or experience

revenue minus costs

It shows all the alternative ways that an economy can allocate resources.
It demonstrates scarcity, trade-offs, opportunity costs, and efficiency.

-there are only 2 goods produced
-there is full resource use
-fixed resources (ceteris paribus)
-fixed technology

E is unattainable, B is efficient, D is inefficient

25 airplanes

Resources are easily adaptable for producing either good

There is constant opportunity cost because the line is straight.
This shows that the resources are easily adaptable to making either product.

As you produce more of a good, the opportunity costs will increase, because resources are not easily adaptable to producing both goods (going from picking low hanging to high hanging fruit).

concave, bowed out

opportunity cost / units gained

1/6 of an airplane

allocative: the products produced are most desired by society
productive: products are produced int the least costly way

ANY point on the curve

A SPECIFIC point on the curve, this optimal point depends on society's wants

-Change in resource quantity and/or quality (more population, more education, etc.)
-Change in technology (new manufacturing robots, etc.)
-Change in trade

More butter producing resources or new butter making technology

More resources (such as a bigger population) or new manufacturing technology

No, it causes production at an inefficient point inside the curve

No

absolute: can produce the most output or requires the least inputs
comparative: produces with the lowest opportunity cost

They should export the good they that have a lower opportunity cost in producing

Because as long as they have different opportunity costs, everyone has a comparative advantage in something, and everyone has a comparative disadvantage in something

Any price per good-A between the opportunity cost of the good-A buyer and the good-A seller

-centrally-planned
-free market
-mixed

What goods and services should be produced?
How should they be produced?
Who will consume them?

The government owns all resources and answers all three economic questions

no profit or competition means that there is no incentive to work harder and produce high-quality goods and avoid shortages

individuals own resources and answer the three economic resources, competition and self-interest work together to regulate the economy (with lower prices and higher quality)

A, because more capital vs consumer goods are being produced

What is the product market

What is the resource (factor market)

The circular flow model

The amount of input of this product over the amount of input of the other product

the number that can be produced of the other product over the number that can be produced of this product