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scarcity
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Unit 1

AP Microeconomics

TermDefinition
scarcity the inability of LIMITED RESOURCES to satisfy UNLIMITED WANTS
types of resources - land/natural - labor - capital/industrial
trade-offs sacrifices made in order to allocate scarce resources
shortage the quantity supplied is typically less than the quantity demanded (at the current price) - market price might be too low
3 essential questions - what to produce? - how to produce? - for whom to produce?
positive statements based on FACTS
normative statements value judgments (what OUGHT to be)
utility satisfaction
marginal change in total (typically additional)
allocate distribute
price amount CONSUMER pays
cost amount SELLER pays to produce a good
investment money businesses spend on GOODS to improve production (not stocks or bonds!)
consumer good created for DIRECT consumption (ex: pizza)
capital good created for INDIRECT consumption (ex: car)
physical capital human-made resource to create more goods/services
human capital skills/knowledge gained through education/experience
PPC production possibility curve
CFM circular flow matrix
private sector run by INDIVIDUALS and BUSINESSES
public sector run by the GOVERNMENT
transfer payments when the government redistributes income (ex: welfare, social security)
subsidies government payments to BUSINESSES
four key assumptions - only TWO goods can be produced - FULL employment of resources - FIXED resources - FIXED technology
constant opportunity cost resources are easily ADAPTABLE for producing either good
law of increasing opportunity cost as you produce more of any good, the OPPORTUNITY COST will INCREASE - results in BOWED OUT CURVE
three shifters of the PPC - change in resource QUANTITY/QUALITY - change in TECHNOLOGY - change in TRADE
absolute advantage who can make the most
comparative advantage who can make something with the LOWEST OUTPUT
explicit cost out-of-pocket costs when making decisions
implicit costs opportunity costs of making decisions
revenue money brought in by producing a good/servive
net total benefit total benefit - total cost
marginal analysis decision making based on INCREMENTS
law of diminishing marginal utility as you consume something, the additional utility you receive will eventually start to decrease
law of utility maximization people will continue to consume until the marginal benefit EQUALS the marginal cost
utility maximizing equation MUa/Pa = MUb/Pb
Created by: maraschrantz
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