Unit 1 AP Macroeconomics (September 2023 Economics)

shifters of demand

consumer taste, prices of related goods (complements and substitutes), consumer income (normal goods vs. inferior goods), number of consumers, change in expectations (upcoming sale)

4 factors of production

land, labor, capital, entrepreneurship

scarcity

less than what we want

price ceiling

maximum legal price a seller can charge for a product. results in lower quality goods.

instances when government improves economic outcomes

military, public goods/services, negative externalities (ex. pollution)

price floor

minimum legal price a seller can sell a product for

financial capital

money needed to buy resources

shifters of supply

price of resources, number of suppliers, productivity, government policies (taxes, subsidies, regulations), expectation of future prices

the law of demand

quantity demanded of a good is inversely proportional to its price

the law of supply

quantity supplied of a good is proportional to its price

traditional economy

resources are allocated based on customs of the society, resulting in people doing what their parents do, roles assigned at birth, good community, and the inability to challenge culture/society (ex. the Amish)

command economy

resources are allocated based on government policy, resulting in no competition, lack of incentive to produce, and often totalitarian systems (ex. North Korea)

capital

resources used to produce value

utility

satisfaction/usefulness

decrease in demand

shift left

decrease in supply

shift left

increase in demand

shift right

increase in supply

shift right

production possibilities frontier (PPF)

shows opportunity cost and trade-offs. linear suggests two closely related goods, curved suggests two completely different goods.

macroeconomics

study of large economy as a whole or in its basic subdivisions (national economic growth, government spending, inflation, unemployment, etc)

microeconomics

study of small economic units such as individuals, firms, and industries (competitive markets, labor markets, personal decision-making, etc)

equilibrium

supply = demand

surplus

supply is greater than demand

opportunity cost

the cost of the next best alternative use of money, time, or resources when one choice is made over another

consumer surplus

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

producer surplus

the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives

Adam Smith, "The Wealth of Nations"

the main proponent of a market-based economy, argued for laissez-faire capitalism

economics

the study of scarce resources that have alternative uses that are used to fulfill nearly unlimited human wants

deadweight loss

the total loss of producer and consumer surplus from underproduction or overproduction

substitution effect

when a product is expensive but its substitute is relatively cheap, fewer products are bought and more substitutes are bought

income effect

when things are expensive, money buys less. when things are cheap, money buys more.

product market

where goods and services produced by businesses are sold to households

resource (factor) market

where resources (land, labor, capital, entrepreneurship) are sold to businesses

market

an institution that brings buyers and sellers together

mixed economy

any combination of two or more economic systems implemented when nations try to find the best of both worlds; a mix of government regulation and free market (ex. most of the world)

labor

any effort a person devotes to a task for which a person is paid

physical capital

any human-made resource that is used to create other goods and services (tools, factories, etc)

human capital

any skills or knowledge gained by a worker through education and experience (college degrees, vocational training, etc)

positive statement

based on facts, avoids value judgments (what is)

which point(s) represent(s) efficient production?

A, B, C. represents full employment (FE)

which point(s) represent(s) inefficient production?

X. represents only a handful of people working, recessionary gap (RG)

which point(s) represent(s) impossible production?

Y. represents an amount of goods that can not be made, inflationary gap (IG)

marginal

additional

land

all natural resources used to produce goods and services (water, sun, trees, oil, etc)

entrepreneurship

ambitious leaders that combine the other factors of production to create goods and services (Henry Ford, Elon Musk, store owners, inventors, etc)

shortage

demand is greater than supply

diminishing marginal utility

each additional unit of an item purchased gives less marginal utility (satisfaction) than the previous unit

laissez-faire capitalism

free markets with minimal government interference

trade-offs

giving up one thing for another

allocate

how something is distributed

normative statement

includes value judgments (what ought to be)