AP Microeconomics
Join code = BW3RPJXRJJJDV
Common Ground:
➢ Economics is about individual choice — the choices individuals make among a limited
number of alternatives
○ To understand functionalities of an economy, we must know how people make
choices and how people interact
➢ Micro vs Macro Economics
○ Micro = examines economies by looking at individuals’ choices
○ Macro = big picture of the whole economy, focuses on economic aggregates
Chapter 1, The Study of Economics:
➢ Economics = study of scarcity and individual choice
➢ Individual choice
○ decisions by people about what to do and not to do
■ E.g. the products you decide to buy in a shop, & what gets presented in
the shop in the first place
➢ Economy
○ A system that coordinates the production and distribution of resources
○ Types of economies:
■ Market economy
● Production & consumption = decided by firms & consumers (the
market)
● E.g. American economy
■ Command economy
● Production & consumption = dictated by a centralized authority
that is mostly inefficient
● E.g. Russia & North Korea (command economy = closely tied with
communism)
○ incentives — the rewards, or punishments that motivates a choice
■ Command economy is inefficient because of low incentives
■ Economists tend to be skeptical about any attempt to change one’s
behaviour without changing their incentive
■ Property rights = secures ownership & allows trade, creates incentives
➢ Marginal analysis
○ Analysis of marginal decisions based on marginal cost & benefit
■ Marginal decision = what to do with the next unit of something
■ Marginal cost = the cost of obtaining one more of something
■ Marginal cost = the gain of obtaining one more of something
➢ Scarcity
1
, ○ Individuals make a choice because resources are scarce
○ Scarce = there isn’t enough of something to satisfy the desires of the society
■ A lot of things seem infinite but are scarce, e.g. oxygen
○ Resources = anything that can be used to produce something else
○ The four categories of resources/factors of production:
■ Land
● Any natural resources/raw materials
■ Labour
● The effort of workers
■ Capital
● manufactured goods used to produce other goods
● *Capital ≠ financial capital (financial capital = money, stocks,
bonds)
■ Entrepreneurship
● Risk taking, innovation & the organization of resources
○ The scarcity of resources means that the society as a whole must make choices
➢ Opportunity cost
○ Definition = value of the next best alternative that you must give up for it
○ E.g. $15 worth of pizza = forgo the opportunity of $15 worth of hamburgers
○ This is the “real” cost of an item
➢ Positive vs Normative Economics
○ Positive economics = describes economy, with a right or wrong
■ What is statement
○ Normative economics = makes prescriptions about how economies should work
■ Should be statement
2
, Chapter 2, The PPC model:
➢ Productions possibilities, curve = A model that helps economists think about the
trade-offs every economy faces
○ Trade off = give up something for another
○ Helps us understand the efficiency, opportunity costs and economic growth
○ Example of apples and pears:
➢ Efficiency
○ An economy is efficient if there aren’t any missed opportunities
○ If there is a better alternative than that of right now, then this is an inefficient use
of resources
○ In respect to the graph
■ Efficient = on the PPC
■ Inefficient = inside the PPC
○ Productive efficiency = any point on the PPC, utilizing all of its resources
○ Allocative efficiency = producing at the point on the PPC that makes the
consumers as well of as possible
➢ Opportunity Cost based on constant slope PPC
○ In the model for every 10 apples, 5 pears have to be sacrificed
■ opportunity cost of one apple = ½ pear
■ opportunity cost of one pear = 2 apple
3
Join code = BW3RPJXRJJJDV
Common Ground:
➢ Economics is about individual choice — the choices individuals make among a limited
number of alternatives
○ To understand functionalities of an economy, we must know how people make
choices and how people interact
➢ Micro vs Macro Economics
○ Micro = examines economies by looking at individuals’ choices
○ Macro = big picture of the whole economy, focuses on economic aggregates
Chapter 1, The Study of Economics:
➢ Economics = study of scarcity and individual choice
➢ Individual choice
○ decisions by people about what to do and not to do
■ E.g. the products you decide to buy in a shop, & what gets presented in
the shop in the first place
➢ Economy
○ A system that coordinates the production and distribution of resources
○ Types of economies:
■ Market economy
● Production & consumption = decided by firms & consumers (the
market)
● E.g. American economy
■ Command economy
● Production & consumption = dictated by a centralized authority
that is mostly inefficient
● E.g. Russia & North Korea (command economy = closely tied with
communism)
○ incentives — the rewards, or punishments that motivates a choice
■ Command economy is inefficient because of low incentives
■ Economists tend to be skeptical about any attempt to change one’s
behaviour without changing their incentive
■ Property rights = secures ownership & allows trade, creates incentives
➢ Marginal analysis
○ Analysis of marginal decisions based on marginal cost & benefit
■ Marginal decision = what to do with the next unit of something
■ Marginal cost = the cost of obtaining one more of something
■ Marginal cost = the gain of obtaining one more of something
➢ Scarcity
1
, ○ Individuals make a choice because resources are scarce
○ Scarce = there isn’t enough of something to satisfy the desires of the society
■ A lot of things seem infinite but are scarce, e.g. oxygen
○ Resources = anything that can be used to produce something else
○ The four categories of resources/factors of production:
■ Land
● Any natural resources/raw materials
■ Labour
● The effort of workers
■ Capital
● manufactured goods used to produce other goods
● *Capital ≠ financial capital (financial capital = money, stocks,
bonds)
■ Entrepreneurship
● Risk taking, innovation & the organization of resources
○ The scarcity of resources means that the society as a whole must make choices
➢ Opportunity cost
○ Definition = value of the next best alternative that you must give up for it
○ E.g. $15 worth of pizza = forgo the opportunity of $15 worth of hamburgers
○ This is the “real” cost of an item
➢ Positive vs Normative Economics
○ Positive economics = describes economy, with a right or wrong
■ What is statement
○ Normative economics = makes prescriptions about how economies should work
■ Should be statement
2
, Chapter 2, The PPC model:
➢ Productions possibilities, curve = A model that helps economists think about the
trade-offs every economy faces
○ Trade off = give up something for another
○ Helps us understand the efficiency, opportunity costs and economic growth
○ Example of apples and pears:
➢ Efficiency
○ An economy is efficient if there aren’t any missed opportunities
○ If there is a better alternative than that of right now, then this is an inefficient use
of resources
○ In respect to the graph
■ Efficient = on the PPC
■ Inefficient = inside the PPC
○ Productive efficiency = any point on the PPC, utilizing all of its resources
○ Allocative efficiency = producing at the point on the PPC that makes the
consumers as well of as possible
➢ Opportunity Cost based on constant slope PPC
○ In the model for every 10 apples, 5 pears have to be sacrificed
■ opportunity cost of one apple = ½ pear
■ opportunity cost of one pear = 2 apple
3
