AP MACROECONOMICS UNIT 1

BASIC ECONOMIC CONCEPTS

Macroeconomics vs Microeconomics

Macroeconomics: study of the economy as a whole.

- minimum wage.

- international trade.

- supply &demand.

Microeconomics: study of individual of specific unit of the economy.

-market structures.

Positive economics vs Normative economics

Positive economics: claims the attempt to describe the world as it is.

- collects and present facts.

Normative economics: claims the attempt to prescribe how the world should be (opinion).

- "ought to be"

- "should be"

Needs vs Wants

Needs: basic requirements for survival.

- food, water, shelter and clothing.

Wants: desire of citizens.

Goods vs Services

Goods: tangible commodities always (bought, sold or produced).

- capital goods (items used in the creation of other goods such as factory machines and trucks).

- consumer goods (goods that are for final use by the consumer).

Services: work performed for someone.

- can be touched or felt.

Scarcity vs Shortage

Scarcity: trying to satisfy unlimited wants with limited resources. 

- the most fundamental economic problem that all societies face. 

Shortage: where quantity demanded is greater than quantity supplied.

Factors of Production

Resources required to produce goods and services.

1) Land (natural resources).

2) Labor (workforce).

3) Capital.

- physical capital ( tools, machinery, factories).

- human capital (skills, knowledge or talents).

4) Entrepreneurship.

- innovative.

- risk taker.

Trade-offs

Trade-offs: alternatives that we give up whenever we choose one course of action over another.
-Opportunity Costs: next best alternative.