Yooo, welcome to AP Macro with Alan!! To get an overview of how the exam is broken down, check out the AP Economics page.
Here, I will go in depth on the content covered in the course! Think of this as a little study guide to make sure you have your bases covered.
This course is content heavy, so what I cover may not necessarily have every nuance or detail.
In addition to this, economic vocab sometimes differs slightly from day to day terms, and I will pick and choose which definitions I find important. Most of economics is learning and understanding vocab and then applying the knowledge to scenarios.
For FRQs especially, it is VERY VERY important you label your points AND axises, and read the whole question!!! Not every graph needed for FRQs will have the same label on the axis.
You also need to make sure to include a direction arrow to show which way your graph shifts!
Econ is a study of scarcity & choice. Scarcity is defined as having unlimited wants but limited resources.
Businesses make choices based on their own self interest to marginalize satisfaction. To do this, they contemplate marginal cost (MC) and marginal benefit (MB). Cost does not necessarily mean the amount the buyer pays, but instead the amount the business pays to produce.
4 Factors of Production :
Land - all natural resources used for production
Labour - any effort a person puts to a task that is paid
Capital -
Physical Capital - any human-made resource used in production
Human Capital - any skill or knowledge gained through experience
Entrepreneurship - leaders who combine the other factors of production to create goods/services
Profit = Revenue - Costs
THE CIRCULAR FLOW MODEL !! I will not add an image here but it is important you search this up and understand the flow of resources/produce !
Private Sector : part of economy run by individuals/businesses
Public Sector : part of economy controlled by the government
This is one of the multiple graphs you will utilize in FRQs, and also one of the simplest. I may add an example in the future, but feel free to do your own research or pull up a picture.
The PPC shows the alternative ways an economy can use its resources. There are 4 key assumptions :
Only 2 goods are produced
Resources are fully used
Fixed Resources/Technology
The PPC is a curve (if you haven't searched it up yet). A bowed-out PPC (concave to the origin) shows increasing opportunity costs, meaning that as you produce more of one good, the opportunity cost of producing even more of that good increases. A bowed-in PPC (convex to the origin) suggests decreasing opportunity costs, where the cost of producing more of one good decreases as you produce more of it.
If a firm is producing inside the curve, then the economy is not maximizing its resources. On the curve, the economy is efficient and maximizing resources. Outside the curve, there are not enough resources unless something within the economy adjusts/changes.
The PPC can be linear, but only if there are constant opportunity costs, meaning resources are interchangeable (1 for 1)
Shifters of the PPC :
Change in quantity/quality of resources
Change in technology
Change in trade (allows more consumption)
More capital goods will lead to more growth in the future. (capital goods are generally the y-axis and consumer goods are the x-axis)
-finishing the PPC talk here-
Per Unit Opportunity Cost = opportunity cost/units gained
Absolute advantage : the producer that can produce the most output / use the least amount of resources
Comparative advantage : the producer with the lowest opportunity cost
Both producers can benefit from a trade if the terms of trade is a number between the opportunity cost of both. Ex.) Brazil has an opportunity cost of 1 wheat per sugar. Peru has a cost of 1 sugar for 1/2 wheat. The terms would be a number between 1 and 2!
Implicit Cost : costs that were not lost but not gained after making a decision
Explicit costs : monetary costs associated with a decision
Utility : a measure of satisfaction
Generally, the more in quantity, the greater the MB and the lower the MC. The most efficient place to make decisions is where cost and benefits intersect (MB=MC). This will make more sense when you begin drawing graphs!
Supply: How much of something that is available to be sold
Demand: How much the buyers of something want it
The 4 main ways these can affect price:
When supply is low but demand stays the same then price will increase due to scarcity. This is called a shortage.
When supply is high but demand stays the same then price will decrease due to overabundance. This is called a surplus.
When demand is low but supply stays the same then price will decrease. This is deflation.
When demand is high but supply stays the same then price will increase due to scarcity. This is inflation.