AP Macroeconomics scarcity, oppurtunity cost, and PPC quiz

what is the key question when making a new government policy?

how it will affect living standards

what is the central question of economics?

how to manage and distribute society's scarce resources

explain Adam Smith's idea of the "invisible hand"

in a free market economy, no one is looking out for the overall economic well-being of society; they are looking out for themselves. However, society ends up being organized in a way that benefits most people. Adam Smith says that this is because of an "invisible hand" guiding the economy; this "invisible hand" can also be known as prices.

what are the qualifications for something to be scarce?

it has to be both limited and desired

what does a country's standard of living depend on?

its ability to produce goods and services

what is market power? what is the cause of it?

market power is the ability of a single person or small group to significantly influence market prices. This happens if this person or small group has too much control over a specific industry.

what is opportunity cost? give an example

opportunity cost is what you give up to get something. For example, if your alarm goes off in the morning, and you hit snooze, the opportunity cost of that action is not taking a shower. (btw: you can use a lot of examples for this)

the "invisible hand" only works if....

the government keeps the laws and maintains the institutions that are necessary for a free market economy

define externality

the impact of one person's actions on the well-being of a bystander

what is the business cycle?

the irregular and unpredictable fluctuations in economic activity

define scarcity

the principle that society has limited resources, so no one can have everything that they want

consumer goods

things that are produced to be consumed

define capital goods

things that are used to produce something

what are the two reasons for the government to intervene in the economy?

to promote efficiency or to promote equality

what is the main cause of inflation?

when the government prints too much money

name the 4 productive resources

1) land/natural resources on the land 2) labor 3) capital (capital goods) 4) entrepreneurial ability

what are property rights? why are they necessary?

Property rights give people the freedom to control scarce resources. They are necessary because no one will work or produce anything if they think that the goods that they produce will be taken from them.

define market failure

a situation where a market left on its own fails to allocate resources efficiently