AP Macro Chapter One-Two

• A person who risks failure in return for
• the possibility of financial gain (profit).

• Entrepreneurship, Capital, Land, and
• Labor.

• The combination of limited
• economic resources and unlimited wants

• What to produce?
• How to produce?
• For whom to produce?
• For whom, because you must have a market for your product.

This illustrates all the possible combinations of two goods or services that can be produced within a stated period of time.

Traditional, Command, & Market

• Economic system in which individuals own
• the factors of production and answer the three basic questions.

• The buildings, structures,
• machinery, and tools used in the production process (“things that make other things”).

The payment for capital

“Gifts of nature” (natural resources)

The payment for land

People and their skill

Hourly wages and salaries

• A product's satisfaction or usefulness to
• a person

• When you consume more and more of a
• product, you get less and less satisfaction

• The economic system in which the basic
• economic questions are answered by government planners.

• Human wants are unlimited and the
• resources needed to satisfy those wants are limited.

• What you give up to get something else or
• your next best alternative choice.

• If society wants to produce more of a
• particular good, it must sacrifice larger and larger amounts of other goods to
• do so.  This is why the PPC is “bowed
• out.”

Factor Suitability

• When resources are moved from the production of one product to the production of another product, they become less and less suited to 
• producing the other product

• “There is no such thing as a free lunch.”  All production involves the use
• of scarce resources and thus the sacrifice of alternative goods.

• The least costly method of production
• called

• Producing the combination of
• goods most desired by society.

• More quantity is bought when prices are low; Less quantity is bought when prices are
• high

C + I + G + Xn

C or Consumption Spending

Free Goods

•There is no monetary cost involved.

• •The enjoyment of a free good by one person does not reduce the
• enjoyment of that good by another person.

• If one nation produces more of a product
• with the same resources

Nations should produce product in which they have the lowest opportunity cost.

The ability to delay gratification (and by studying you did).

A, B, and C  =  Full employment and full   production. 5% unemployment and 85% P&E ratio

• Y  =  Unattainable
• with current resources and technology

W  =  Where our economy normally operates

Z  =  Great Depression

X  =  Severe Recession

U  =  WWII

• 1.  Resources are fixed in quality and
• quantity.
• 2. Technology is fixed.
• 3. Only two products are made.
• 4. The economy is efficient and operating at full production and full
• employment

• 1.  Using new and improved technology.
• 2. Expand the four economic resources.
• 3. International trade to obtain the four resources.
• 4. Present Choices and Future Possibilities.

directly, indirectly

• Where marginal cost (MC) = marginal benefit (MB)
• It would go down.