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AP Economics Unit 1 (The Five Foundations of Economics (Opportunity cost:…
AP Economics Unit 1
Scarcity: This is the basic problem that economics seeks to solve. Humans have unlimited wants, but limited means to distribute goods and services that satisfy these wants.
Economic Systems: A type of economic system is determined by the extent to which a government controls the production and distribution of goods and services.
Command Economies: Centralized economies in which the government controls the means of production and distribution of goods.
Market Economies: Economies in which government involvement is less and the economy is dictated by a free market. The key distinction between these two is property rights.
How do Consumers Buy Goods? Economics is a study of choices in which people will consume goods based on the marginal utility, additional benefits, that these goods will provide. This is the concept of marginal analysis, in which you evaluate the additional benefit that an additional unit will bring. When evaluating this up against additional cost, you engage in cost-benefit analysis.
Trade: In order to consume and enjoy goods from around the world, countries engage in trade. They do so by determining who is more efficient at producing what.
Absolute Advantage: The trade advantage of a producer that an produce the most output or require the least amount of inputs.
Comparative Advantage: The producer with the lowest opportunity cost when producing a unit of output. This determines what product a country should export.
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Production Possibilities Curve: This graph illustrates a country or producer's various maximum combinations of two goods. It shows the potential combinations of output.
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AP Economics Unit 2
Demand: The law of demand refers to the fact that the quantity demanded decreases as the price rises and vice versa. The main shifters of demand are:
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Supply: The law of supply refers to the fact that the quantity supplied by producers increases as the price rises and vice versa. The main shifters of supply are:
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The law of Supply and Demand states that market prices adjust to bring an equilibrium in which quantity supplied equals quantity demanded.
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Consumer surplus refers to the positive difference between a price a consumer was willing to pay and what they actually paid.
Producer surplus refers to the positive difference between the price a producer was willing to sell at and the price they actually sold at.
Government Action: Price Controls, Taxation, and Subsidies
Price floors are legally established minimums for a good or service. When they are binding and fall above the equilibrium price, they create a surplus because QS exceeds QD.
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Price ceilings are legally established maximum prices for a good or service. When they are binding and fall below the equilibrium price, they create a shortage where QD exceeds QS.
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World Trade and Tariffs: Tariffs are taxes levied by the government on imported goods and services in order to protect domestic industries.
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