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Summary AP Microeconomics Exam Review 2024
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AP Microeconomics Exam Review 2024
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AP Microeconomics Exam Review 2024Economics - The study of how people, firms, and societies use their scarce
productive resources to best satisfy their unlimited wants
Factors of Production - Labor, Land, Capital, Entrepreneurial ability
Physical capital - Manmade equipment like machinery, but also buildings, roads,
vehicles, and computers
Entrepreneurial Ability - The effort and know how to put the other resources
(Factors of Production) together in a productive venture
Scarcity - The difference between unlimited wants and limited economic resources
Trade-offs - The fact that we are faced with scarce resources implies that
individuals, firms, and governments are constantly faced with trade-offs
Opportunity Cost - The opportunity cost of doing something is what you sacrifice
to do it (i.e. if you use a scarce resource to pursue activity X, the opportunity cost
of activity X is activity Y, the next best use of that resource)
Marginal Analysis - Rational individuals and firms weigh the additional benefits
against the additional costs (They think at the margin)
Marginal - "the next one" or "additional" or "incremental"
,AP Microeconomics Exam Review 2024
Marginal Cost - The additional cost incurred from the consumption of the next
unit of a good or service
Marginal Benefit - The additional benefit received from the consumption of the
next unit of a good or service
Production Possibilities Curve - A model of an individual or a nation that can
choose to allocate its scarce resources between the production of two goods or
services, it is assumed that those resources are being fully employed and used
efficiently
Points outside of the Production Possibilities Curve - Any point outside the frontier
is currently unattainable
The slope of the PPF - The slope of the curve measures the opportunity cost of the
good on the x axis
The inverse of the slope measures the opportunity cost of the good on the y axis
Shape of a realistic PPF - Concave or bowed outward
Comparative Advantage - The ability to produce goods at a lower opportunity cost
that another individual/firm/nation
Specialization - Individuals/firms/nations produce the goods in which they have a
comparative advantage
, AP Microeconomics Exam Review 2024
Productive efficiency - The economy is producing the maximum output for a given
level of technology and resources (all points on the PPF are productively efficient)
Allocative efficiency - The economy is producing the optimal mix of goods and
services (the combination of goods and services that provides the most net
benefit to society; the best point on the PPF)
Substitution effect - The change in quantity demanded resulting from a change in
the price of one good relative to the price of other goods
Income effect - The change in quantity demanded resulting from a change in the
consumer purchasing power (real income)
Determinants of Demand - -Consumer income
-The price of a substitute good
-The price of a complimentary good
-Consumer tastes and preferences for the good
-Consumer expectations about the future price of the good
-The number of buyers in the market for that specific good
Normal Good - A good for which higher income increases demand
Inferior Good - A good for which higher income decreases demand
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