AP Macro Chapter One-Two
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AP Macro Chapter One-Two
AP macro chapter one two peterson
For Macro Test
A person who risks failure in return for
the possibility of financial gain (profit).
The Four Economic Resources or
Factors of Production.
Entrepreneurship, Capital, Land, and
The combination of limited
economic resources and unlimited wants
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.
Production Possibilities Curve
This illustrates all the possible combinations of two goods or services that can be produced within a stated period of time.
What are the three basic economic systems?
Traditional, Command, & Market
Economic system in which individuals own
the factors of production and answer the three basic questions.
What is capital?
The buildings, structures,
machinery, and tools used in the production process (“things that make other things”).
The payment for capital
What is land?
“Gifts of nature” (natural resources)
The payment for land
What is labor?
People and their skill
What is the payment for labor?
Hourly wages and salaries
A product's satisfaction or usefulness to
Diminishing Marginal Utility
When you consume more and more of a
product, you get less and less satisfaction
The economic system in which the basic
economic questions are answered by government planners.
Scarcity exists because ………
Human wants are unlimited and the
resources needed to satisfy those wants are limited.
What you give up to get something else or
your next best alternative choice.
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
The reason for the Law of Increasing Opportunity Costs
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
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.
The least costly method of production
What is Allocative Efficiency?
Producing the combination of
goods most desired by society.
Law of Demand
More quantity is bought when prices are low; Less quantity is bought when prices are
What is the letter formula for GDP?
C + I + G + Xn
What is the largest component of GDP?
C or Consumption Spending
What are air and sunshine?
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.
If one nation produces more of a product
with the same resources
What is comparative advantage?
Nations should produce product in which they have the lowest opportunity cost.
What is the most important factor for a person’s success?
The ability to delay gratification (and by studying you did).
A Sample PPC: What does each coordinate
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
What are the four assumptions of the PPC?
1. Resources are fixed in quality and
2. Technology is fixed.
3. Only two products are made.
4. The economy is efficient and operating at full production and full
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.
Consumer goods satisfy wants _______
while capital goods satisfy wants __________.
What is the most optimal point on the curve below?
Where marginal cost (MC) = marginal benefit (MB)
It would go down.