AP Macro Chapter One-Two

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  1. Entrepreneur
    • A person who risks failure in return for
    • the possibility of financial gain (profit).
  2. The Four Economic Resources or
    Factors of Production.
    • Entrepreneurship, Capital, Land, and
    • Labor.
  3. Scarcity
    • The combination of limited
    • economic resources and unlimited wants
  4. What are the Three Basic Economic
    Questions? Which question is most important and why?
    • What to produce?
    • How to produce?
    • For whom to produce?
    • For whom, because you must have a market for your product.
  5. Production Possibilities Curve
    This illustrates all the possible combinations of two goods or services that can be produced within a stated period of time.
  6. What are the three basic economic systems?
    Traditional, Command, & Market
  7. Market economy
    • Economic system in which individuals own
    • the factors of production and answer the three basic questions.
  8. What is capital?
    • The buildings, structures,
    • machinery, and tools used in the production process (“things that make other things”).
  9. Interest
    The payment for capital
  10. What is land?
    “Gifts of nature” (natural resources)
  11. Rent
    The payment for land
  12. What is labor?
    People and their skill
  13. What is the payment for labor?
    Hourly wages and salaries
  14. Utility
    • A product's satisfaction or usefulness to
    • a person
  15. Diminishing Marginal Utility
    • When you consume more and more of a
    • product, you get less and less satisfaction
  16. Command Economy
    • The economic system in which the basic
    • economic questions are answered by government planners.
  17. Scarcity exists because ………
    • Human wants are unlimited and the
    • resources needed to satisfy those wants are limited.
  18. Opportunity Cost
    • What you give up to get something else or
    • your next best alternative choice.
  19. The Law of Increasing Opportunity
    • If society wants to produce more of a
    • particular good, it must sacrifice larger and larger amounts of other goods to
    • do so.  This is why the PPC is “bowed
    • out.”
  20. The reason for the Law of Increasing Opportunity Costs
    Factor Suitability
  21. What is factor suitability?
    • When resources are moved from the production of one product to the production of another product, they become less and less suited to 
    • producing the other product
  22. What is TINSTAAFL?
    • “There is no such thing as a free lunch.”  All production involves the use
    • of scarce resources and thus the sacrifice of alternative goods.
  23. Productive Efficiency
    • The least costly method of production
    • called
  24. What is Allocative Efficiency?
    • Producing the combination of
    • goods most desired by society.
  25. Law of Demand
    • More quantity is bought when prices are low; Less quantity is bought when prices are
    • high
  26. What is the letter formula for GDP?
    C + I + G + Xn
  27. What is the largest component of GDP?
    C or Consumption Spending
  28. What are air and sunshine?
    Free Goods
  29. What are the characteristics of a “free
    •There is no monetary cost involved.

    • •The enjoyment of a free good by one person does not reduce the
    • enjoyment of that good by another person.
  30. Absolute Advantage
    • If one nation produces more of a product
    • with the same resources
  31. What is comparative advantage?
    Nations should produce product in which they have the lowest opportunity cost.
  32. What is the most important factor for a person’s success?
    The ability to delay gratification (and by studying you did).
  33. A Sample PPC: What does each coordinate
    represent? Image Upload
    A, B, and C  =  Full employment and full   production. 5% unemployment and 85% P&E ratio

    • Y  =  Unattainable
    • with current resources and technology

    W  =  Where our economy normally operates

    Z  =  Great Depression

    X  =  Severe Recession

    U  =  WWII
  34. What are the four assumptions of the PPC?
    • 1.  Resources are fixed in quality and
    • quantity.
    • 2. Technology is fixed.
    • 3. Only two products are made.
    • 4. The economy is efficient and operating at full production and full
    • employment
  35. What are the four ways to “push out the PPC” to the right or “grow” the economy?
    • 1.  Using new and improved technology.
    • 2. Expand the four economic resources.
    • 3. International trade to obtain the four resources.
    • 4. Present Choices and Future Possibilities.
  36. Consumer goods satisfy wants _______
    while capital goods satisfy wants __________.
    directly, indirectly
  37. What is the most optimal point on the curve below?
    Image Upload
    • Where marginal cost (MC) = marginal benefit (MB)
    • It would go down.
Card Set:
AP Macro Chapter One-Two
2013-09-07 19:09:04
AP macro chapter one two peterson

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