AP Macro

• Scarcity


  The inability of our limited resources to satisfy our unlimited wants
• Human beings want a lot of things and there just aren't enough resources to give us all of those things
• Scarce item


  An item where there is less of it than is wanted of that item
• All societies face scarcity
• Scarcity is the fundamental problem that we study in economics
• Positive price


  Typically items that are scarce will have a positive price even if that's a very low positive price
• Opportunity cost


  You have to give something up in order to get scarce items
• Production possibilities curve


  A graph that shows all combinations of two goods or categories of goods that can be produced with fixed resources
• Types of scarce goods and services


  • Goods at your local grocery
  • Digital goods on the internet
  • Services like a haircut
• Non-scarce item


  An item where there is more of it than people want or need
• Example of production possibilities curve

  • Fortnite matches
  • Math problems
• Constructing a production possibilities curve

  1. Plot points of maximum combinations of two goods

  2. Connect the points to form a curve
• Non-scarce items


  • Air
  • Trash
• Already established knowledge is not scarce because it is non-rival
• Comparative advantage


  The ability to produce something at a lower opportunity cost
• Production possibilities curve


  • Shows trade-offs between two goods
  • Bowed out shape indicates increasing opportunity costs
• Resources required to produce goods and services


  • Land
  • Labor
  • Physical capital
  • Entrepreneurship
• Opportunity cost


  The cost of a choice, measured by the next best alternative foregone
• Comparative advantage allows us to use specialization and trade to make us better off
• Goods and services are scarce because the resources needed to produce them are also scarce
• Absolute advantage


  The ability to produce more of something with fixed resources or the same amount of something with fewer resources
• Opportunity cost examples


  • Fortnite matches given up to do more math problems
  • Math problems given up to play more Fortnite matches
• If Apple produces more laptops


  It will have fewer resources to produce their cell phones
• As more of one good is produced

  Opportunity cost of producing that good increases
• Big Country production


  • 80 tons of grain
  • 40 tons of meat
• Shortage


  The quantity supplied is less than the quantity demanded at the current price
• Productive efficiency


  Any point on the production possibilities curve, where resources are being used efficiently
• Little Country production


  • 20 tons of grain
  • 20 tons of meat
• Ceteris paribus


  All other things held constant
• Big Country has absolute advantage in grain

  Because 80 tons is greater than 20 tons
• When there is a shortage, the price increases or the item runs out
• Long-run equilibrium


  In macroeconomics, a point on the production possibilities curve where there is full employment
• Law of demand


  Consumers will buy more of a good at low prices and less of a good at high prices
• Big Country has absolute advantage in meat

  Because 40 tons is greater than 20 tons
• Recession


  In macroeconomics, a point inside the production possibilities curve where there is high unemployment and inefficient use of resources
• Opportunity cost


  What you give up when you make a choice
• There is an inverse relationship between price and the quantity of goods and services consumers buy
• Demand curve


  • Downward sloping
  • Shows inverse relationship between price and quantity demanded
• Points outside the production possibilities curve are impossible to produce
• Calculating opportunity cost


  Other good / Good produced