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AP Econ Chapter 1 Notes

This document provides an overview of key concepts in introductory microeconomics. It discusses scarcity and how individuals and firms make decisions given limited resources. It also covers efficiency and inefficiency in trade, how resources are allocated, and different types of economics including positive, normative, and descriptive. Other concepts summarized include factors of production, opportunity cost, comparative advantage, supply and demand, and the fundamental questions addressed by economics.

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Abhi Sreekanth
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228 views3 pages

AP Econ Chapter 1 Notes

This document provides an overview of key concepts in introductory microeconomics. It discusses scarcity and how individuals and firms make decisions given limited resources. It also covers efficiency and inefficiency in trade, how resources are allocated, and different types of economics including positive, normative, and descriptive. Other concepts summarized include factors of production, opportunity cost, comparative advantage, supply and demand, and the fundamental questions addressed by economics.

Uploaded by

Abhi Sreekanth
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Intro to Microeconomics

Scarcity: How do individuals and firms make decisions given that we live in a world of scarcity
(scarce resources).
Efficiency: All the trades that can make both the consumers, and producers better off are made.
Inefficiency: All the trades that can make both the consumers, and producers better off are made
(government intervention).
Allocation: Who gets the goods
Positive Economics (definition): An approach to economics that seeks to understand behavior
and operation of systems without making judgments. It describes what exists and how it works.
Normative Economics (definition): An approach to economics that analyzes outcomes of
economics behavior, evaluates them as good or bad, and may prescribe courses of action.
Descriptive Economics: The compilation of dada that describe phenomena and facts.
Economic Theory: A statement or set of related statements about cause and effect, action and
reaction.
Model: A formal statement of a theory, usually a mathematical statement of presumed
relationship between two or more variables.
Variable: A measure that can change from time to time or from observation to observation.
Ockhams razor: the principle that irrevelant detal should be cut away
Ceteris Paribus: A device used to analyze the relationship between two variables while the values
of other varialbes are held unchanged.
Post hoc, ergo propter hoc: If event A happens before event B, it is not necessarily true that A
caused B.
Fallacy of Composition: What is true for a part is necessarily true for the whole.
Equity: Fairness
Economic Growth: The increase in total output of an economy.
Stability; A condition in which national output is growing steadily, with low inflation and full
employment of resources.
Capital: Things that are themselves produced and that are then used in the production of other
goods and services.
Factors of production: The inputs into the process of production.
Production: The process that transforms scarce resources into useful goods and services.
Resources: Anything provided by nature or previous generations that ccan be used directily or
indirectly to satisfy human wants.
Outputs: Usable products
Opportunity cost: The best alternative that we give up, or forgo, when we make a choice or
decision.
Theory of Comparative Advantage (Ricardo): Ricardos theory that specialization and free trade
will benefit all trading parties, even those that may be absolutely more efficient producers.
Absolute Advantage: Produce a product using fewer resources
Comparative Advantage: Produce a product at a lower opportunity cost
Consumer goods: Goods produced for present consumption.
Investment: the process of using resources to produce new capital.
PPPF: A graph that shows all the combinations of goods and services that can be produced if all
of societys resources are used efficiently.
MRT: The slope of the PPF
Economic Growth: Occurs when a society acquires new resources or when it learns to produce
more using existing resources
Command Economy: An economy in which a central government either directly or indirectly
sets output targets, incomes, and prices.
Laissez-Faire Economy: An economy in which individual people and firms pursue their own
self-interests without any central direction or regulation.
Market: The institution through which buyers and sellers interact and engage in exchange.
Consumer Sovereignty: The idea that consumers ultimately dictate what will be produced (or not
produced) by choosing what to purchase (and what not to purchase).
Constrained optimization: Given scarce resources how do individuals and firms trade-off
different alternatives to make themselves as well off as possible.
Example: Buying a 4
th
edition or 5
th
edition of a text book, Tradeoff: Price,
information in the textbook.
Consumers maximize utility subject to budget constraints
Producers maximize profit, subject to consumer demand and input cost
Fundamental Questions of Economics:
1. What goods and services get produced
2. How do you produce those goods and services Controlled by Prices
3. Who gets those goods and services
Theoretical Economics: Building testable models
Empirical Economics: Testing the models
Positive Question: Why did something happen
Normative Question: Should that something be allowed to happen
Ex: Some guy auctioned his kidneys on Ebay and the final price was $5 Million, Ebay then shut
down the auction and stated that you werent allowed to sell body parts
Supply- How much of something is available
Demand- How much does someone wants that something
Supply and Demand are twin forces meaning that one has an effect on another.

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