AP Microeconomics
1 1 .
Scarcity
Almost all productive resources are scarce
Exceptions accepted knowledge:
All resources are scarce
They are finite while our
, wants are unlimited
e .
g. WWI WWI,
shifting resources for war effort shifting people forjobs
,
COVID-19 :
car production ventilator production shifting
>
-
, resources
Scarcity is the fundamental problem of economics
Economic Resources
Land :
resources found in nature
rent :
payment for the use of land
Labor : human effort
wages payment for the use of labor
:
Capital machinery tools equipment
:
, ,
interest
payment for the use of capital
:
Entrepreneurship : innovation , ideas
profit payment for the
: use of entrepreneurship
Income :
payment for the use of economic resources
* NOT
everything is an economic resource
x consumer
goods , waste,
money ,
stocks & bonds , etc.
1 . 2 Resource Allocation & Economic Systems
Limited productive resources -> used to produce goods & service >
-
satisfy society's wants
D What will be
produced ? Resource Allocation
② How will
they be produced ? Production
③ Who will get them ? Distribution
Pure Command Economy
Government owns resources
Makes decisions distributes ,
goods/services
Pure Market
Economy
People decide how to use how to produce > under competition ,
-
distribution based on laws of supply/demand
, Mixed
Economy
Most economies are this
Government regulation supply/demand , , some government distribution
Characteristics of Market Economies
·
Private ownership of resources
· Market prices direct resource use
· Income depends on individual resources, incentive
Consumer
·
demand drives production decisions
·
Specialization promotes competition
· Prices fluctuate with supply/demand
Economic decisions areanswered by interactions of individual consumers & producers
1 3
. Production Possibilities Curve
1 With 1x5 strip of paper
L
a
10 · B
A attainable
:
, inefficient
B unattainable
A
:
, 11 , 15 I
line :
efficient
Resources easily interchangeable -> not the case IRL
are
Every resource has opportunity costs
When used for one used for another
purpose it cannot be
Opportunity cost what we give up making a choice
:
If the
opportunity cost for one good is
increasing , it must increase for the other
PPC must intersect
1
Y
Asing i
Y y *
Increa-
&
Constant
Decreasing both axes
X -X > X
needed
To reach an unattainable
point ,
economic
growth is
Assumptions of a PPC
·
Fixed resources
·
Productive efficiency
· full
employment
·
Two goods
Only / point represents allocative efficiency
·
Capital goods- > future consumption
1 1 .
Scarcity
Almost all productive resources are scarce
Exceptions accepted knowledge:
All resources are scarce
They are finite while our
, wants are unlimited
e .
g. WWI WWI,
shifting resources for war effort shifting people forjobs
,
COVID-19 :
car production ventilator production shifting
>
-
, resources
Scarcity is the fundamental problem of economics
Economic Resources
Land :
resources found in nature
rent :
payment for the use of land
Labor : human effort
wages payment for the use of labor
:
Capital machinery tools equipment
:
, ,
interest
payment for the use of capital
:
Entrepreneurship : innovation , ideas
profit payment for the
: use of entrepreneurship
Income :
payment for the use of economic resources
* NOT
everything is an economic resource
x consumer
goods , waste,
money ,
stocks & bonds , etc.
1 . 2 Resource Allocation & Economic Systems
Limited productive resources -> used to produce goods & service >
-
satisfy society's wants
D What will be
produced ? Resource Allocation
② How will
they be produced ? Production
③ Who will get them ? Distribution
Pure Command Economy
Government owns resources
Makes decisions distributes ,
goods/services
Pure Market
Economy
People decide how to use how to produce > under competition ,
-
distribution based on laws of supply/demand
, Mixed
Economy
Most economies are this
Government regulation supply/demand , , some government distribution
Characteristics of Market Economies
·
Private ownership of resources
· Market prices direct resource use
· Income depends on individual resources, incentive
Consumer
·
demand drives production decisions
·
Specialization promotes competition
· Prices fluctuate with supply/demand
Economic decisions areanswered by interactions of individual consumers & producers
1 3
. Production Possibilities Curve
1 With 1x5 strip of paper
L
a
10 · B
A attainable
:
, inefficient
B unattainable
A
:
, 11 , 15 I
line :
efficient
Resources easily interchangeable -> not the case IRL
are
Every resource has opportunity costs
When used for one used for another
purpose it cannot be
Opportunity cost what we give up making a choice
:
If the
opportunity cost for one good is
increasing , it must increase for the other
PPC must intersect
1
Y
Asing i
Y y *
Increa-
&
Constant
Decreasing both axes
X -X > X
needed
To reach an unattainable
point ,
economic
growth is
Assumptions of a PPC
·
Fixed resources
·
Productive efficiency
· full
employment
·
Two goods
Only / point represents allocative efficiency
·
Capital goods- > future consumption
