AP Gov Econ Exam March 2022

Fast food chains are replacing human workers with kiosks customers can order from. What happens to the market for fast food today? Circle One: Increase in Supply Decrease in Supply Increase in Demand Decrease in Demand Factor Shifting the curve: _______________________ Circle One: Equilibrium price has increased or decreased

-increases supply -change in technology -decreased

Sunk Cost Fallacy

The bias humans have that causes us to believe if we have invested something, we should follow through even if that requires more investment.

Opportunity Cost

what you have to give up to buy what you want in terms of other goods or services. EX:A farmer chooses to plant wheat; the opportunity cost is planting a different crop,

Production Possibilities Frontier

(PPF) a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology. The starting line is perfect production, a line below that is inefficient, a line above that is impossible/unattainable.

Substitutes vs. Complements

- Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the other. Ex: hot dogs and hamburgers. - Complements: two goods for which an increase in the price of one leads to a decrease in the demand for the other. Ex: peanut butter and jelly.

A major celebrity has recently promoted the use of spinach in your morning smoothie. What happens to the market for spinach today? Circle One: Increase in Supply Decrease in Supply Increase in Demand Decrease in Demand Factor Shifting the curve: _______________________ Circle One: Equilibrium price has increased or decreased

-increase in demand -consumer taste -increased

A recent hurricane has destroyed many of the buildings in a major city. The city is ready to rebuild. What happens to the market for construction today? Circle One: Increase in Supply Decrease in Supply Increase in Demand Decrease in Demand Factor Shifting the curve: _______________________ Circle One: Equilibrium price has increased or decreased

-increase in demand -natural disaster -increased

The price of eggs goes down today. What happens to the market for bacon today? Circle One: Increase in Supply Decrease in Supply Increase in Demand Decrease in Demand Factor Shifting the curve: _______________________ Circle One: Equilibrium price has increased or decreased

-increase in demand -change in price of related goods -increase

Incentive

A reward or motivation provided in monetary terms. It produces a desired response from the parties by altering their natural behavior.

Tragedy of the Commons

A situation in which individuals with access to a public resource (also called a common) act in their own interest and, in doing so, ultimately deplete the resource.

Market Economy

All economic decisions are made by individuals and no government. Adam Smith's "Invisible Hand" describes how goods are services are efficiently allocated without a government overseeing distribution. Prioritizes economic freedom, growth, and efficiency at the cost of economic equity.

Command Economy

All economic decisions are made by the government (usually a dictator). Requires citizens to work certain jobs. Prioritizes economic stability. Usually socialist countries

Mixed Economy

All economic decisions are made by the government and individuals. Most economies fall under this but favor command or market. The government oversees/regulates markets but individuals have a degree of choice

Sunk Cost

An investment that has already incurred that can't be recovered. Once a cost has been incurred, it cannot be recovered so future decisions should not be based upon past sunk costs.

Thinking at the Margin

Considering how much you value an addition of something. You ignore the sunk costs of what's already going to happen, and weigh up the costs and benefits of adding in something extra

Traditional Economy

Customs, rituals, and tradition determines what is produced, how it is made, and who produces it. Hunter gatherer types who prioritize stability and security.

What role do incentives play in advertising?

Incentives give consumers a final nudge to interact with your brand

Revenue vs. Profit

Revenue: the money collected for the sale of goods or services Profits: the earnings on those sales after subtracting the costs of doing business

Scarcity

The condition of there being limited resources to meet unlimited wants and needs

Opportunity cost vs trade offs

The highest value tradeoff is your opportunity cost. Tradeoff refers to the decision to pick the alternative while the opportunity cost refers to the value of the forgone alternative

What role do sunk costs play in your life?

The sunk cost fallacy is our tendency to continue with an endeavor we've invested money, effort, or time into—even if the current costs outweigh the benefits. And while the term sounds like technical jargon, it's a common decision-making pitfall in both life and business

how minimum wage is an example of a price control.

This is because price floor represents the scenario where the government sets the price of a commodity above the equilibrium price. A price floor is set by the government to prevent the prices of some goods from being too low.

What role do trade offs, incentives, and opportunity costs play in your life

Trade-offs alter how we feel about the decisions we face and affects the level of satisfaction we experience from the decisions we ultimately make, incentives can invade your life, trying to persuade you to do a certain thing that you may not have done otherwise, Opportunity costs help you make better decisions in all aspects of your life.

Trade Offs

Tradeoff is the decision to pick the alternative

Movement Along the Curve (Supply or Demand)

When the price and quantity of a product change but it does not shift the entire curve

Market Equilibrium & Market Clearing Price

a situation in which quantity demanded equals quantity supplied It's the price at which buyers and sellers agree because quantity supplied equals quantity demanded. This is called market equilibrium! It is the price at which the supply curve intersects the demand curve.

Demand Curve & Law of Demand

there is an inverse (negative ) relationship between the price of a good and the quality that the buyers are willing to purchase.( as price increases, quantity demanded decreases)

Normal vs. Inferior Goods

with normal goods, as income goes up demand goes up. with inferior goods, as income goes up demand goes down. *Normal goods* are goods that the individual wants; e.g. steak, nice car, computer, etc. *Inferior goods* are goods that the individual uses because they have to, e.g. public transit. As individual's *income rises*, the individual *uses fewer inferior goods* - not gonna use public transit if you can afford a car.

Factors that Shift the Demand Curve

1. changes in consumer income: if consumers have more to spend, price of normal goods increases; if consumers have less to spend, price of normal goods increases 2. changes in consumer taste: if consumers suddenly like a product, demand increases but if consumers suddenly dislike a product, demand decreases 3. change in price of related goods: increased price for one good= increase demand for substitute and decreased price for one good= decreased demand for substitution; increase price of one good= decrease demand for compliment and decrease price of one good= increase demand for compliment 4. changes in consumer expectations: could increase or decrease demand (economy conditions, future income, weather conditions) 5. change in the number of buyers: lower buyers=lower demand and higher buyers=higher demand

Factors that Shift the Supply Curve

1. changes in cost of inputs: if cost of one/more inputs decreases(increase in supply curve) the supply curve shifts to the right; if cost of one/more inputs increases(decrease in supply curve), the supply curve shifts to the right 2. changes in the number of sellers: increase in # of sellers= increase in supply curve (shifts to the right); decrease in # of sellers= decrease in supply curve (shifts to the left) 3. natural disasters: could destroy supply of a good, which shifts curve to the left; but a war could increase trade or supply of goods (weapons) so supply curve shifts to right 4. changes in technology: changes or advancements in technology usually shift the supply curve to the right bc technology lowers the cost of inputs by replacing human laborers with machinery 5. changes in producer expectations: increase in supply= if producers expect prices will fall in future, they put more of their products on the market today before the prices will fall; decrease in supply= if producers expect that prices will rise in the future, they will put more of their product into storage and put it back on the market when prices go back up 6. changes in gov policies or regulations: subsidies allow producers to make more goods with the government money OR the government could be paying them to produce less

The Wealth of Nations

A book by Adam Smith that describes the industrialized capitalist system that was upending the mercantilist system. It extolls the benefits of the division of labor, competition, and trade. Economic progress depends upon a trinity of individual prerogatives: pursuit of self-interest, division of labor, and freedom of trade

Shortages vs. Surpluses

If the price is too low, it creates a shortage as the product sells out quickly and sellers could have raised the price and made more money. If the price is too high, it creates a surplus as the product doesn't sell very well and too much product stays on the shelves, not making money for the seller. A shortage occurs when the quantity demanded for a good exceeds the quantity supplied at a specific price. A surplus occurs when the quantity supplied of a good exceeds the quantity demanded at a specific price.

Supply Curve & Law of Supply

It shows the relationship between quantity supplied and price for a specific good or service. When price increases, quantity supplied increases When price decreases, quantity supplied decreases

Factors of Production (land, labor, capital-physical and human, entrepreneur)

Land- all natural resources (perpetual, renewable, nonrenewable), Labor- the effort and time paid into production for which someone is paid, Human capital- expertise, experience, skill, education, knowledge of laborers, Physical capital- physical, man-made tools, machines, resources involved in production plans, Entrepreneur- the risk taker who combines the factors of production to create goods and services

Cost-Benefit Analysis

Listing out the costs (what you spend) and benefits (what you gain) of a decision and then making a choice

Price Controls (Ceilings vs. Floors)

Price Ceilings: maximum price for a good or service in a specific market (charging above this price would be illegal) Price Floors: minimum price for a good or service in a specific market (charging below this price would be illegal) you have to put price ceilings below equilibrium and price floors above equilibrium to make a change in the market