AP Macroeconomics: Concepts

Individual and Market Demand Curves

A Demand curve represents the price-quantity combinations of a PARTICULAR good for a SINGLE buyer. A Market demand curve is derived by "adding up" individual demand curves or from the market demand schedule. Example on page 65 in textbook

Production Possibilities

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.) Example: As indicated on the chart above, points A, B and C represent the points at which production of Good A and Good B is most efficient. Point X demonstrates the point at which resources are not being used efficiently in the production of both goods; point Y demonstrates an output that is not attainable with the given inputs.

Specialization

A person or society's decision to focus production on a particular good or service to have a better degree, leading it to trade with others for remaining goods it needs. Example: As citrus goods naturally occur in the warmer climate of the South and West, many grain products come from the farms of the Midwest and maple syrup comes from the maple trees of Vermont and New Hampshire. (specialize in a particular good)

Absolute Advantage

Absolute advantage is producing a good using less resources. Example: Jane can knit a sweater in 10 hours, while Kate can knit a sweater in 8 hours. Kate has an absolute advantage over Jane, because it takes her fewer hours (the input) to produce a sweater (the output).

Comparative Advantage

Comparative advantage is producing a good at a smaller opportunity cost. Example: Someone gives up going to see a movie to study for a test in order to get a good grade. The opportunity cost is the cost of the movie and the enjoyment of seeing it, but she left half way in the movie to not give up all her studying time (smaller opportunity cost)

Shifts in Supply and Demand with Effects on Equilibrium Price and Quantity

Example on page 75 in textbook

Determinants of Demand

Factors that shift the demand curve and violate "all other things equal" assumption. Examples: consumer tastes, number of buyers, consumer income, price of related goods, consumer expectations

Determinants of Supply

Factors that shift the supply curve and violate "all other things equal" assumption. Examples: resource prices, technology, consumer income, taxes and subsidies, prices of other goods, producer expectations, number of sellers

Terms of trade

Is a measure of how much imports an economy can get for a unit of export goods Example: If an economy is only exporting apples and only importing oranges, then the terms of trade are simply the price of apples over the price of oranges. In other words, how many oranges can you get for a unit of apples.

Market Equilibrium

Market equilibrium is a market state where the supply in the market is equal to the demand in the market. Example on page 70 in textbook

Opportunity Cost

Opportunity Cost is what you must forgo in order to get something. Example: Someone gives up going to see a movie to study for a test in order to get a good grade. The opportunity cost is the cost of the movie and the enjoyment of seeing it.

Positive versus Normative Economics

Positive economics is objective and fact based, while normative economics is subjective and value based. Example: The tax rate is 5% (positive), but we would want that tax rate to be 3% (normative) in the future.

Scarcity

Scarcity is a naturally occurring limitation on the resource that cannot be replenished. Example: After poor weather, corn crops did not grow resulting in a scarcity of food for people and animals

Demand Schedule

Shows what a single consumer is willing to pay for a product at various prices. Example: Mr. Gamble really wants those organic oranges so he might pay higher than original price. (consumer choice)

Supply Schedule

Shows what a single producer is willing to supply a product at various prices. Example: Mr Gamble only has a limited supply of organic apples, so he will raise the price since he is limited on apples. (Producer choice)

Micro versus Macro Economics

The difference between micro and macro economics is simple. Microeconomics is the study of economics at an individual, group or company level. Macroeconomics, on the other hand, is the study of a national economy as a whole. Example of Microeconomics: studying the supply and demand for a specific product, the production that an individual or business is capable of, or the effects of regulations on a business. Example of Macroeconomics: unemployment rates, the gross domestic product of an economy, and the effects of exports and imports.