AP Microeconomics Notes

Chapter Outlines

Chapter 2: The Discipline of Economics

Economics Defined
1. Economics
  1. A social science that studies how resources are used and is often concerned with how resources can be used to their fullest potential
Macroeconomics versus Microeconomics
1. Macroeconomics
  1. Involves economic problems encountered by the nation as a whole
2. Microeconomics
  1. Concerned with the economic problems faced by individual units within the overall economy (families, individuals, firms)
Positive versus Normative Economics
1. Positive Economics
  1. Based on the scientific method
    1. hypotheses formulated and tested with experiments
3. Normative Economics
  1. Involves value judgments and opinions
  2. Based on the way someone believes things ought to be
  3. No scientific investigation involved
Resources
1. Resource
  1. Anything that can be used to produce a good or service
2. Categories
  1. Land
    1. all natural resources
  2. Labor
    1. all human attributes that are productive
    2. service, function, or task performed to produce something
  3. Capital
    1. productive equipment or machinery
Opportunity Cost
1. Opportunity Cost
  1. What must be sacrificed in order to obtain something
2. Efficiency
  1. Implies using resources to their fullest potential
3. Mathematically
  1. Opportunity cost of Good X = Change in Good Y production / Change in Good X production
  2. Will always equal some number of units of Good Y
4. In Terms of Macroeconomics
  1. If a nation decides to produce one more unit of Good X, how many units of Good Y will be sacrificed?
Production Possibilities Frontier
1. Definition
  1. The graphical portrayal of hypothetical production possibilities
  2. Shows the combinations of two goods that can be produced if the economy uses all of its resources fully and efficiently
2. Points Inside the Frontier
  1. Resources are not being used fully or efficiently
3. Points outside the Frontier
  1. Unobtainable at this time
  2. May be obtained in the future because the frontier may shift
4. Factors that Cause a Shift
  1. Changes in the amount of resources in the economy
    1. population growth/decline
    2. new territories acquired
    3. devastating war or weather
  2. Changes in technology and productivity
    1. government regulation or tradition
Law of Increasing Costs
1. Law of Increasing Costs
  1. As more of a product is produced, the opportunity cost increases
2. Production Possibilities Frontier
  1. Line that is curved concave to the origin
3. Cause/Reason
  1. Some resources are more adept at the production of one good than another
  2. The opportunity cost of producing a good becomes greater as more resources are forced into industries where they are not as productive
Comparative Advantage
1. The Law of Comparative Advantage
  1. David Ricardo 1800’s
  2. An application of opportunity cost
  3. Advocates specialization for increased output
  4. Forms the basis for the widespread support of free trade
2. Absolute Advantage
  1. The ability to produce something more efficiently
3. Comparative Advantage
  1. The ability to produce something with a lower opportunity cost
4. Implications
  1. Trade can be mutually advantageous to both countries even if one country has the absolute advantage in all products

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Aboukhadijeh, Feross. "Chapter 2: The Discipline of Economics" StudyNotes.org. Study Notes, LLC., 12 Oct. 2013. Web. 23 Apr. 2024. <https://www.apstudynotes.org/microeconomics/outlines/chapter-2-the-discipline-of-economics/>.

AP Microeconomics Notes

Chapter 2: The Discipline of Economics

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