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Introduction to AP Economics

Introduction to AP Economics. Economics is defined as the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants.

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Introduction to AP Economics

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  1. Introduction to AP Economics

  2. Economics is defined as the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants. • The study of economics explains how productive resources are used to provide the goods and services that satisfy human wants and needs.

  3. Goods v. Services

  4. Scarcity is the fundamental economic problem facing all societies. We have limited resources and unlimited needs and wants. • Economic wants exceed productive capacity. Resources are scarce and choices must be made.

  5. Society has virtually unlimited needs and wants. • Needs: Food Shelter Clothing

  6. Scarce Resources • Human • Natural • Capital

  7. Scarce Resources =Factors of Production: • Land (natural resources) • Labor (human resources) • Capital (equipment, machinery) • Entrepreneurship(takes initiative, make decisions, innovates and takes risks.)

  8. Basic economic questions: • What goods and services will be produced? • How will goods and services be produced? • Who will consume the goods and services? (How should it be shared?)

  9. The study of economics… • Economics is considered a social science. Why? • What do economists do? • What is the difference between microeconomics and macroeconomics?

  10. Microeconomics examines decision making by individual units. • Macroeconomics examines either the economy as a whole or its basic subdivisions or aggregates. • Positive economics deals with economic facts, i.e. “the unemployment rate is 9.8%.” • Normative economics is a subjective perspective of the economy, i.e. “the unemployment rate is too high.”

  11. Theories, Principles, and Models • The scientific method Formulate a hypothesis Test the hypothesis Observe Accept, reject, or modify the hypothesis Continue to test the hypothesis, if necessary • Economic principles • Generalizations • Other-things-equal assumption • Graphical expression LO2 1-11

  12. Economic Goals • Theoretical economics helps economists use facts to analyze and explain the economy and develop policies. • Economic policies are designed to explain a number of economic goals including: economic growth, full employment, economic efficiency, price-level stability, economic freedom, equitable distribution of income, economic security and balance of trade.

  13. Production Possibilities Model • Trade-offs • Opportunity Cost • Production Possibilities Curve (PPC)

  14. A Production Possibilities Curve (PPC) illustrates production choices and assumes: • Full employment • Fixed resources • Fixed technology • Two goods. • Limited or fixed resources means that at any point in time, a full-employment, full production economy must sacrifice some of product X to obtain more of product Y.

  15. PRODUCTION POSSIBILITIES Q 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Unattainable A B C W Attainable & Efficient Robots (thousands) D Attainable but Inefficient E Q 1 2 3 4 5 6 7 8 Pizzas (hundred thousands)

  16. PRODUCTION POSSIBILITIES Applications... • Unemployment and Productive Inefficiency • Tradeoffs and Opportunity Costs

  17. P $15 10 5 Marginal Benefit & Cost Q 1 2 3 Quantity of Pizzas Marginal Cost/Marginal Benefit Analysis Allocative Efficiency: MB=MC MC MB=MC MB

  18. Shifts in the Production Possibilities Curves Q A’ 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Economic Growth B’ C’ Robots (thousands) D’ E’ Q 1 2 3 4 5 6 7 8 Pizzas (hundred thousands)

  19. Factors influencing economic development… • Technological advances • Specialization • Division of Labor • Increase in resources • Better resource quality

  20. Circular Flow Model

  21. A final thought…. It is important to study economics for two main reasons – personal financial benefits and good citizenship… Not just because you want to pass the AP test

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