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)