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Study Guide to Advanced Placement Microeconomics
Hello everyone, I'm an AP student in the United States currently enrolled in AP Micro as well as some other classes. After browsing Hubpages, I was surprised to see a lack of articles such as the one I'm writing now. Whether you're new to AP Micro or need to review for an upcoming exam, I'll help guide you over some of the basics.
So, what does economics mean?
Economics, by definition, is how society or individuals use scare resources in order to fufill their endless amounts of needs and wants. A need or want can either be tangible, meaning touchable, or intangible, meaning untouchable. Tangible needs or wants are goods, intangible needs or wants are services. We generally have unlimited wants, while resources are limited. In order to fulfill a need or want, there is always a cost. This cost is not always monetary; it could be time, effort, or something else. In economics, we call these opportunity costs.
Remember, resources are always scarce, because our need for them is always greater than what is available.This is why many Econ teachers say, "Economics=Scarcity" So what are the categories of resource?
Types of Resource
There are four types of resources in Economics. Land, labor, capital, and entrepreneurship. Here's all you need to know of them. Land is fairly obvious, in order to have a business, one must buy or rent the land to have it on. If you're going to grow crops, then you need to buy a field to grow them on. Labor is easy too, you need to hire employees for the successful running of the business, or you need to hire people to manage or pick your plants.
Capital is important to distinguish, money is not capital in Economics! Capital goods are defined as good that can produce something more than what they are, money can't produce anything (unless your using it to snort coke, which is not endorsed by this Hub! lol) Capital is things like machinery or a factory in with which or in which you produce whatever good. The last resource is entrepreneurship, which is someone willing to take risks for the possibility of profit.
You hopefully remember when I mentioned costs. In Economics, both Micro and Macro, we must differentiate between trade offs and opportunity costs. A trade off is when one trades one thing for another, while the opportunity cost is what you would've chosen had you not taken that choice. In other words, the second option that you've forgone in favor of the first. So if you have three choices of ice cream, you might choose Chocolate as a trade off of Vanilla. The trade off is choosing Chocolate over Vanilla, while the opportunity cost is not getting the joy of tasting Vanilla, which is hopefully less than the joy of the Chocolate. But wait, there's more! We must also consider the money you've spent on the treat. So the total opportunity cost is missing the taste of Vanilla and the 5 bucks you bought the Chocolate for.
Production Possibilities Frontier
Look at the graph above, it is a typical example of what we call the Production-Possibilities Frontier. So if one economy of a nation produced either DVD Players or MP3 Players, or a mix between the two, they have a set point that they can operate at as their resources are limited. Looking at the graph, the curve shows the boundary that the economy has with their current resources. If they wanted to produce, say, 80 MP3's, then the maximum DVD Players they could make would be 80 (Point A). However, if Bieber became a huge hit in the country and everyone wanted to get an MP3 to rock out with him and the country wanted 100 per year instead, then they would have to limit their DVD production to 50 (Point B). The curve, again, shows the maximum points the economy of said nation may operate at. If they are at Point D, then they are not being efficient. Point E, which lies outside the curve, is beyond the capabilities of their current resource amount; it is unattainable.
To conclude this Hub, let's look at the connection between the PPF (production-possibilities frontier) and opportunity costs. At Point A, they are making 80 of both products. If they move from operating at Point A to Point B, they are making 20 more MP3's, 30 less DVD's. So each MP3 is worth .66 DVD Players.
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