AP Macro Unit 1 notes part A

Micro Unit 1, Lesson 1 (one day)

ECONOMICS: Concerned with the efficient use and management of limited productive resources to achieve maximum satisfaction of human material wants.

ECONOMICS: The study of our behavior in producing, distributing, and consuming material goods and services in a world of scarce resources.

SCARCITY: WANTS EXCEED RESOURCES

ECONOMICS: The study of how limited resources are allocated in a world of unlimited wants.

We want more than we are capable of getting.


MICROECONOMICS: deals with specific economic units and a detailed consideration of these individual units. The economist is placing a specific portion of the economy under a microscope.

MACROECONOMICS: Deals either with the economy as a whole or the basic subdivision or aggregates such as government, household, or business sectors, which make up the economy.

relation v. causation: Just because something happens when something else happens does not mean one caused the other. It may just be that they are correlated. (They are associated in some systematic but dependable way.) It may be that a third variable is the cause yet that variable makes the first two correlated.
An example of this is hot weather and electric bills. When the weather gets hot your parents electric bills go up. These two are not related by causation. (one does not cause the other.) Instead, they are correlated. When the weather gets hot the air conditioners are turned on and this causes the electric bills to go up.

To illustrate the example of ceteris parabus use the example of shooting a bullet out of a gun at an angle. How far does the bullet travel. In physics what do you consider. Velocity, projectory, friction (air pollution)...

CETERIS PARIBUS: Means other things being equal. In economics when you are working on a problem we must assume that only those variables will change. All others remain the same.

Unit One: Lesson 2

Once again, look at the definitions of Economics. Relate this to limited resources.

ECONOMICS: Concerned with the efficient use and management of limited productive resources to achieve maximum satisfaction of human material wants.

ECONOMICS: The study of our behavior in producing, distributing, and consuming material goods and services in a world of scarce resources

SCARCITY: WANTS EXCEED RESOURCES

ECONOMICS: The study of how limited resources are allocated in a world of unlimited wants.

Economics is the study of the distribution of goods and services. It is all based on the idea that we live in a world of unlimited wants with limited or scares resources.

Examples of Resources are:
1) Land: This includes the land and its natural resources

2) Labor: This includes all services of people used in production except Entrepreneurial ability, which will be discussed later.

3) Capital: This is all the things used in production. Can anyone give me examples? (Tools, machinery, equipment, the factory itself...) (Notice that money is not capital because it in itself is useless.)

4) Entrepreneurial Ability: This is the person responsible for taking the first three and combining them into a product or service. He is also the one who bears the risk of the undertaking.

Some assumptions are (CETERIS PARIBUS)
1) Fixed Resources:

2) Fixed Technology:

3) Two Products: (Usually one capital good and one consumer good)

4) We are achieving economic efficiency:
Inside the PPC you would not be at economic efficiency. We might not be at full employment.
This could be that workers that want to work can not find jobs. We are not at FULL EMPLOYMENT.

This also assumes that what is being produced is what we want to be produced.

ALLOCATIVE EFFICIENCY: Resources are devoted to goods most wanted by society.

PRODUCTIVE EFFICIENCY: Least costly production techniques are used to produce wanted goods and services. If you building boats by hand you are not utilizing full production.







Given that we have a world of unlimited wants in a world of limited resources we must decide how to allocate production to satisfy society. We must look at our production possibilities.

Production Possibilities Curve (also called Production Possibility Frontier)

Assume two products
1. What are the tradeoffs involved?
Must give up units of one good in order to produce units of the other.
Notice that if they give up more capital goods for consumer goods they are hurting their future.

2. Why is the PPC concave?
As more and more of a good is produced it takes more away from the other because the resources are not easily converted. (Law of Increasing Opportunity Costs)

3. What does a point inside the curve represent?
A point in which efficiency is not being achieved.

4. Can you think of an example in history when we were inside the PPC?
Great Depression

5. What is the significance of a point outside the PPC.
Without advancements in technology or changes in factors of production this is unattainable for long period of time.















Suppose that additional resources (land, labor, capital and entrepreneurial ability was found. (In other words the economy is expanding.) HOW WOULD THIS AFFECT OUR PPC? (It would shift it outward.)

The same is true for technological advancements

One thing a society must decide is if it wants to produce more goods that will help it advance or more goods that it can consume now. Should we produce at A or B? Either works, it just depends on what society wants. However, A will help you advance quicker in the long run.


6. Under what conditions could the point outside the PPC be reached?
Technological advancements or new resources

Make sure that students understand that no point on the curve is more desirable from an economist standpoint. That gets into societies specific wants, which is outside the scope of the class.

OPPORTUNITY COSTS: THE AMOUNT OF OTHER PRODUCTS WHICH MUST BE FOREGONE OR SACRIFICED TO OBTAIN SOME AMOUNT OF ANY GIVEN PRODUCT.
Ex: In order to have more pizzas we must give up robots. The opportunity of pizzas is therefore robots.

OPPORTUNITY COST: The best alternative forgone. This takes into consideration all types of opportunity costs rather than just production costs. Ex. Study or go on a date

Implicit Costs: Resources that could have been used in the next best alternative. You could be taking team sports or marketing instead of A.P. Economics. You could take a nap tonight instead of studying.

Explicit Costs: These are the measurable costs. It costs $3 for a Big Mac. This is measurable.

Marginal means change.


Broad Social Goals

1. Economic Freedom: The right to choose your own occupation, employer, and use of your money (taxes?). Business owners have the right to produce what they want and how much they want.

2) Economic Efficiency: gains must be more than costs.
Efficiency must continually improve if we expect our standard of living to increase.
Measurement: Corporate Profits, GNP, GDP and Unemployment

3) Economic Equity: Equity means fairness
Illegal to discriminate based on age, race, sex or disability
False advertising, unfair pricing and dangerous products are prohibited.
Measurement: Unemployment, # of discrimination cases, minimum wage

4) Economic Security: protection from layoffs and illness
Measurement: Welfare Total Recipients, Social Security Expenditures, and unemployment rate

5) Full Employment:
If people can not work they can not support their family. Society is hurt.
Unemployment reduces efficiency because factors of production are not being used.
Unemployed people must rely on others for support. (Family, friend, government…)
Measurement: unemployment rate

6) Price Stability
Inflation is a rise in the general level of prices
Inflation reduces every person’s buying power
Inflation is especially difficult for people on fixed incomes (Fixed incomes are incomes that do not rise as prices rise)
Inflation Hurts Savers
Measurement: Consumer Price Index (CPI)

7) Economic Growth: the increasing of our production of goods and services
Is necessary to satisfy the needs and wants of a growing population
Do you want your children to live better than you do?
Do you want to improve the quality of home, medical care, transportation, and clothing….
To do this requires economic growth.
Measurement: GNP, Corporate Profits and Dow Jones IA