Julie's AP Macroeconomics Blog: Unit 1: Basic Economic Concepts

January 10, 2018

Scarcity, Factors of Production

Vocabulary:

Scarcity: It is the fundamental economic problem that all societies face. The condition in which out wants are greater than the limited resources.
Economics: Social science concerned with the efficient use of limited resources to achieve maximum satisfaction of economic wants.
1st Pillar of Economic Wisdom: Nothing in our material world can come from nowhere or go nowhere, nor can it be free; everything in our economic life has a source, a destination, and a cost that must be paid.
Five Key Economic Assumptions:

Society's wants are limited, but ACC resources are limited (scarcity).
Due to scarcity, choices must be made. Every choice has a cost (trade-off).
Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own "self-interest".
Everyone makes decisions by comparing the marginal benefits of every choice.
Real-life situations can be explained and analyzed through simplified models and graphs

Marginal Cost: The increase or decrease in the total cost of a production run for making one additional unit of an item.
Marginal Benefits: An increase in an activity's overall benefit that is caused by a unit increases in the level of that activity, all other factors remain constant

Ceteris Paribus: All other things being unchanged or constant. Used in economics to rule out the possibility of "other" factors changing the specific casual relation between two variables is focused.
Opportunity Cost: The potential benefit that is given up as you seek an alternative course of action.
Macroeconomics:

Study of large economy as a whole or in its basic subdivisions (National Economic growth, Government Spending, Inflation, Unemployment, etc.)
Inflation
GDP
Minimum Wage
International trade

Study of small economic units such as individuals, firms, and industries (competitive markets, labor markets, personal decision making, etc.)
Supply 1st demand
how firms/houses react to economics

Utility: Satisfaction derived or expected to be derived from the consumption of goods and services.
Allocate: Analysis of how scarce resources ('factors of production') are distributed among producers, and how scarce goods and services are apportioned among consumers.
Price: The amount of money that has to be paid to acquire a given product.
Cost: Monetary valuation of effort, material, resources, time, and utilities consumed, risk incurred, and opportunity fargone in production and delivery of a good or service.
Investment: A component of aggregate demand, it includes all spending on capital equipment, inventories, and technology by firms.
Goods: A commodity or service that can be utilized to satisfy human wants and that has exchange value.

Services: A type of economic activity that is intangible, is not stored and does not result in ownership.
Explicit Costs: Direct payment made to others in the course of running a business, such as a wage, rent, and materials.
Implicit Costs: Any cost that has already occurred but is not necessarily shown or reported as a separate expense.
Positive vs. Normative Economics

Positive Economics: Claims that attempt to describe the world as is. It's very descriptive and based of facts.

Normative Economics: Claims that attempt to prescribe how the world should be. It's very prescriptive and based upon opinion.

Example: When a store doesn't have enough of a certain item to satisfy all individuals.

Surplus: When a store has a lot of an item but a small demand. For it to sell, the price drops to sell out.
Factors of Production

Physical Capital: Human-made objects used to create other goods and services
Human Capital: Knowledge in skills that a worker gains through education and experience.

Julie's AP Macroeconomics Blog