Ap Econ Review


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Review for Quarter Final for Next Week

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Ap Econ Review

  1. 1. AP Econ Quarter Review Kennedy
  2. 2. Scarcity <ul><li>Resources-Factors of Production </li></ul><ul><li>Labor/Land or Natural Resources/Physical Capital/Entrepreneurial ability </li></ul><ul><li>Scarcity </li></ul><ul><li>All resources are scarce </li></ul><ul><li>Trade-offs </li></ul><ul><li>Everybody needs to make decisions </li></ul><ul><li>Stockbroker vs. McDonalds </li></ul><ul><li>Opportunity Costs </li></ul><ul><li>Choice between studying vs. Nintendo </li></ul><ul><li>Marginal Analysis= MC vs. MB </li></ul><ul><li>The next one…Marginal Cost vs Marginal Benefit </li></ul><ul><li>The additional cost to consume an additional item. </li></ul>
  3. 3. Production Possibilities <ul><li>Production Possibilities table- </li></ul><ul><li>Shows the opportunity cost of production </li></ul><ul><li>Production Possibilities Curve </li></ul><ul><li>Graphically shows choice production of two products </li></ul><ul><li>Production Possibilities Frontier </li></ul><ul><li>Curve or the outer limit of production </li></ul><ul><li>Production sustainability </li></ul><ul><li>We are what we are..Better at sales than manufacturing </li></ul><ul><li>Law of Increasing Costs- </li></ul><ul><li>The Bow-The more a product is produced the more it costs to produce it. </li></ul><ul><li>Comparative Advantage and Specialization </li></ul>
  4. 4. Production Possibilities 2 <ul><li>Comparative Advantage- </li></ul><ul><li>China can produce LCDs less than in US. </li></ul><ul><li>Absolute Advantage- </li></ul><ul><li>Saudi Arabia can produce oil more than any other country. It has an Absolute advantage in oil production. </li></ul><ul><li>Perfect Advantage- </li></ul><ul><li>When there are exchanges with complete efficiency. </li></ul><ul><li>Imperfect Advantage- </li></ul><ul><li>There are problems or inconsistencies with exchanges and somebody makes a profit. </li></ul><ul><li>Productive Efficiency- </li></ul><ul><li>Maximum output of a product at a level of resources and technology </li></ul><ul><li>Allocative Efficiency- </li></ul><ul><li>Production of the optimal level of products that provides the greatest net benefit to society. </li></ul>
  5. 5. Growth <ul><li>Increase in quantity of resources- </li></ul><ul><li>Bakery hires another pastry baker and can produce more. </li></ul><ul><li>Increase in quality of existing resources. </li></ul><ul><li>Pastry bakers get Belgian pastry inservice. </li></ul><ul><li>Technological Advancement. </li></ul><ul><li>New ovens increase production and taste. </li></ul>
  6. 6. Market vs. Command System <ul><li>Market System involves Private Property. </li></ul><ul><li>Market System involves Risk, Self-Interest and Incentives. </li></ul><ul><li>Pareto Efficiency- Certain percentage within market economies accrue capital. </li></ul><ul><li>Command System-Marxist or subsistence economies. </li></ul><ul><li>Command System involves central planning and government ownership of property. </li></ul>
  7. 7. Part Two <ul><li>Demand, Supply, Market Equilibrium and Welfare Analysis </li></ul>
  8. 8. Law of Demand <ul><li>The Law of Demand- Holding all things equal when a price rises consumers decrease their quantity demanded for that good. </li></ul><ul><li>Income and substitution effects </li></ul><ul><li>Real vs. Nominal prices </li></ul><ul><li>Substitution effect-prices of ipods drive us to zunes. </li></ul><ul><li>Income effect-ipod has doubled its price and you make the same so you have lost purchasing power. </li></ul><ul><li>The Demand Curve-A graphic demand schedule that follows the law of demand.(negative slope) </li></ul>
  9. 9. Determinants of Demand <ul><li>Consumer income </li></ul><ul><li>The price of a substitute good such as iced tea vs. pop. </li></ul><ul><li>The price of a complimentary good like a popsicle </li></ul><ul><li>Consumer tastes and preferences for lemonade. </li></ul><ul><li>Consumer expectations about future prices of lemonade. </li></ul><ul><li>Number of buyers in the market for lemonade. </li></ul>
  10. 10. Supply <ul><li>The Law of Supply- </li></ul><ul><li>Holding all things equal, when the price of a good rises suppliers increase their quantity supplied for a good. </li></ul><ul><li>Increasing Marginal Costs- </li></ul><ul><li>The more you do something the harder it becomes to do another thing.(one more rep) </li></ul><ul><li>The Supply Curve- </li></ul><ul><li>Graphic supply schedule with a positive slope. More of incentive to sell more when its at a higher price. </li></ul><ul><li>When the price of a good changes and all other factors are held constant the supply curve is held constant. External factors move the supply curve left or right. </li></ul>
  11. 11. Determinants of Supply <ul><li>The cost of an input to the production of lemonade.(sugar(intermediate goods)) </li></ul><ul><li>Technology and productivity used to produce lemonade </li></ul><ul><li>Taxes or subsidies on Lemonade </li></ul><ul><li>Producer expectations about future prices </li></ul><ul><li>The price of other goods that could be produced </li></ul><ul><li>The number of lemonade stands in the industry. </li></ul>
  12. 12. Market Equilibrium <ul><li>Equilibrium= </li></ul><ul><li>Sweet spot where Qd=Qs </li></ul><ul><li>Shortage- </li></ul><ul><li>Excess Demand </li></ul><ul><li>Surplus- </li></ul><ul><li>Excess Supply </li></ul><ul><li>Changes in Demand- </li></ul><ul><li>Run on products- Go Scrooge on weak dollar </li></ul><ul><li>Increase in Demand- Wii limit at Fred Meyer because of release of Brawl . </li></ul><ul><li>Decrease in Demand- P3 prices decrease because of increase in demand for wii and 360 . </li></ul><ul><li>Changes in Supply- Increases in diesel prices(transport) </li></ul>
  13. 13. Market Equilibrium p2 <ul><li>Changes in Supply </li></ul><ul><li>Increase in Supply </li></ul><ul><li>New Technology increases Grove’s Law </li></ul><ul><li>Decrease in Supply </li></ul><ul><li>Problems with transportation costs </li></ul><ul><li>Simultaneous Changes in Demand and Supply. </li></ul><ul><li>Double Whammy - Cold winter + high fuel prices= 4.00 gal diesel. </li></ul>
  14. 14. Welfare Analysis <ul><li>Total Welfare- </li></ul><ul><li>Sum of consumer and producer surplus. </li></ul><ul><li>Consumer Surplus </li></ul><ul><li>Difference between what you are willing to pay and what you would actually pay. </li></ul><ul><li>Producer Surplus </li></ul><ul><li>The amount made by a producer above the marginal cost. </li></ul>
  15. 15. Macroeconomic Measures of Performance
  16. 16. The Circular Flow Model
  17. 17. Accounting for Output and Income <ul><li>Valuing production- the value of goods produced over the number of goods produced. </li></ul><ul><li>Developed Nations- high quality goods. </li></ul><ul><li>Developing Nations-Low quality goods and resources. </li></ul><ul><li>Undeveloped Nations-Poor quality goods and non-renewable resources. </li></ul>
  18. 18. Gross Domestic Product <ul><li>Aggregate- Sum of everything domestic and foreign. </li></ul><ul><li>What’s out- Intermediate goods </li></ul><ul><li>Double counting- </li></ul><ul><li>Second Hand Sales </li></ul><ul><li>Non-Market transactions </li></ul><ul><li>Underground Economy-Stuff off of the grid. </li></ul><ul><li>Consumer Spending= C </li></ul><ul><li>Investment Spending= I </li></ul><ul><li>Government Spending=G </li></ul><ul><li>Net Exports=(x-m) </li></ul>
  19. 19. National Income Concepts <ul><li>Aggregate Income= Income approach </li></ul><ul><li>GDP=C+I+G+(X+M)= Aggregate Spending= Aggregate Income=Y </li></ul><ul><li>Nominal vs. Real GDP= </li></ul><ul><li>Nominal = value at current prices. </li></ul><ul><li>Real= Value adjusted for certain date. </li></ul><ul><li>Deflating Nominal GDP= </li></ul><ul><li>Real GDP=100*(Nominal GDP)/(Price Index) </li></ul>
  20. 20. Real and Nominal GDP <ul><li>Real GDP=100*(Nominal GDP)/(Price Index) </li></ul>
  21. 21. GDP DEFLATOR <ul><li>GDP price defaltor </li></ul>
  22. 22. Business Cycles <ul><li>Expansion </li></ul><ul><li>Peak </li></ul><ul><li>Contraction </li></ul><ul><li>Trough </li></ul>
  23. 23. Inflation, Consumer Price Index <ul><li>Consumer Price Index= BLS selects base year and a market basket(400g/s in 40 urban) of goods to chart changes in prices. </li></ul><ul><li>This is done monthly. </li></ul><ul><li>Price Index Current year=100*(Scurrent year)(Sbase year) </li></ul><ul><li>Consumer inflation=100(CPIn-CPIo)/CPI old </li></ul><ul><li>Nominal vs. Real income= </li></ul><ul><li>Real income=(nominal Income)/CPI(in100ths) </li></ul>
  24. 24. Unemployment and Full Employment Model <ul><li>The Unemployment Rate- </li></ul><ul><li>Labor Force= E+ U </li></ul><ul><li>Unemployment rate = UR=U/LF </li></ul><ul><li>Frictional Unemployment-switching(new) </li></ul><ul><li>Seasonal Unemployment(Alaska) </li></ul><ul><li>Structural Unemployment(Man to Service) </li></ul><ul><li>Cyclical Unemployment(follows business cycle) </li></ul>
  25. 25. Consumption, Savings and the Multiplier
  26. 26. Consumption <ul><li>DI=Gross Income-Net Taxes </li></ul><ul><li>Consumption cycle </li></ul><ul><li>Marginal Propensity to Consume(MPC) </li></ul>
  27. 27. Saving <ul><li>Saving Cycle </li></ul><ul><li>Marginal Propensity to Save. </li></ul>
  28. 28. Multiplier
  29. 29. Aggregate Demand and Aggregate Supply