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AP Macroeconomics unit 1 Cheat Sheet (DRAFT) by

what it says on the tin

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Unit 1 Notes

A resource is anything that can be used to produce something else.
A scarce resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it.
Also known as factors of production; scarce resources are:
Land: all natural resources
Labor: the effort of workers
Capital: all manufa­ctured resources
Entrep­ren­eurship: risk-t­aking, innova­tion, and organi­zation
Positive economics is the branch of economic analysis that describes the way the economy actually works.
Normative economics makes prescr­iptions about the way the economy should work.

PPC

Compar­ative vs. Absolute Advantage

The production possib­ilities curve model illust­rates gains from trade based on compar­ative advantage.
An individual has a compar­ative advantage in producing a good or service if they face the lowest opport­unity cost of producing it.
An individual has an absolute advantage in production if they can make more of it with a given amount of time and resources.
It is not possible for one person (or country) to have the compar­ative advantage in both products
Absolute advantage is not the same as compar­ative advantage.

Demand

The demand curve is downwa­rd-­sloping due to the law of demand.
The law of demand says that all other things being equal, people demand less of a good or service at higher prices.
A shift of the demand curve is a change in the quantity demanded at any given price.
It is repres­ented by the movement of the original demand curve to a new position.

Factors of demand curve shifts

Five factors are respon­sible for shifts of the demand curve.
1) Changes in Tastes
2) Changes in prices of Related goods/­ser­vices
3) Changes in Income
4) Changes in the number of Buyers
5) Changes in Expect­ations

Substi­tutes and Compli­ments

 
 

1.2

The Production Possib­ilities Curve illust­rates the trade-offs between producing two goods.
The production possib­ilities curve model illust­rates the opport­unity cost of produc­tion. Cost, in this example, is measured in terms of loss of the other produc­t.The curve is concave or bowed-out.

1.2 (copy)

The two main sources of growth in the PPC are increases in available resources and improv­ements in techno­logy.
If the production possib­ilities curve shifts inward, the economy has become smalle­r.This could happen if the economy loses resources or techno­logy.

PPC

Any points along the curve are feasible and produc­tively efficient. Point A and B reflect an efficient use of resources in produc­tion.
Points outside the curve are not feasible.
An economy is efficient if there is no way to make anyone better off without making at least one person worse off.

Gains from Trade

In a market economy, indivi­duals engage in trade: they provide goods and services to others and receive goods and services in return.
The gains from trade come from specia­liz­ation: each person specia­lizes in the task that they are good at perfor­ming.
The concept of specia­liz­ation allows for the mass production of most of the devices and appliances we use today.
By specia­lizing in the good they have a compar­ative advantage in and by trading for the other good, both castaways can consume more of each good. In other words, there are gains from trade.

Movement along and Shifts of the Demand curve

Movement along the curve from point A to point B is a change in quantity demanded and is caused by a change in price.
A decrease in demand means a leftward shift of the demand curve.
At any given price, consumers demand a smaller quantity than before.
An increase in demand means a rightward shift of the demand curve.
At any given price, consumers demand a larger quantity than before.