AP Macroeconomics Chapter 1
An economy in which the government makes all economic decisions about how the factors of production are used.
The forces of supply and demand determine how economic questions will be answered.
An economy in which economic decisions are made based on decisions.
Factors of Production
Land, labor, capital, entrepreneurial ability (resources).
Land, labor, capital, entrepreneurial ability (factors of production).
When there are not enough resources to satisfy our unlimited needs and wants.
The value of our next best alternative.
Production Possibilities Curve/Frontier
A graphic representation of the production relationship between two goods.
Those goods used in the production process.
Those goods used by people in their day to day lives.
Able to produce a good or service more efficiently or using fewer resources.
Able to produce a good or service at a lower opportunity cost than another nation.
How much of a good or service consumers are willing and able to purchase at every price level.
How much of a good or service consumers are willing and able to purchase at one price level.
Law of Demand
There is an inverse relationship between price and quantity demanded.
The price of a good affects the amount of a good or service a consumer is willing and able to purchase.
A consumer will substitute a cheaper product for a more expensive one.
How much of a good or service producers are willing and able to supply at every price.
How much of a good or service producers are willing and able to supply at one price level.
Law of Supply
There is a direct relationship between price and quantity supplied.
The intersection of two economic lines such as supply and demand where quantity supplied and demanded are equal at a specific price.
When quantity demanded is greater than quantity supplied.
When quantity supplied is greater than quantity demanded.
When government sets a price below equilibrium.
When government sets a price above equilibrium.