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Chapter2:TheDisciplineofEconomicsAPMicroeconomicsChapterOutlinesStudyNotes

AP Microeconomics Notes from StudyNotes.org

Chapter 2: The Discipline of Economics

A.EconomicsDefined

1.Economics

a.Asocialsciencethatstudieshowresourcesareusedandisoftenconcernedwithhowresourcescanbeusedto

theirfullestpotential

B.MacroeconomicsversusMicroeconomics

1.Macroeconomics

a.Involveseconomicproblemsencounteredbythenationasawhole

2.Microeconomics

a.Concernedwiththeeconomicproblemsfacedbyindividualunitswithintheoveralleconomy(families,individuals,

firms)

C.PositiveversusNormativeEconomics

1.PositiveEconomics

a.Basedonthescientificmethod

i.hypothesesformulatedandtestedwithexperiments

2.NormativeEconomics

a.Involvesvaluejudgmentsandopinions

b.Basedonthewaysomeonebelievesthingsoughttobe

c.Noscientificinvestigationinvolved

D.Resources

1.Resource

a.Anythingthatcanbeusedtoproduceagoodorservice

2.Categories

a.Land

i.allnaturalresources

b.Labor

i.allhumanattributesthatareproductive

ii.service,function,ortaskperformedtoproducesomething

c.Capital

i.productiveequipmentormachinery

E.OpportunityCost

1.OpportunityCost

a.Whatmustbesacrificedinordertoobtainsomething

2.Efficiency

a.Impliesusingresourcestotheirfullestpotential

3.Mathematically

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Chapter2:TheDisciplineofEconomicsAPMicroeconomicsChapterOutlinesStudyNotes

a.OpportunitycostofGoodX=ChangeinGoodYproduction/ChangeinGoodXproduction

b.WillalwaysequalsomenumberofunitsofGoodY

4.InTermsofMacroeconomics

a.IfanationdecidestoproduceonemoreunitofGoodX,howmanyunitsofGoodYwillbesacrificed?

F.ProductionPossibilitiesFrontier

1.Definition

a.Thegraphicalportrayalofhypotheticalproductionpossibilities

b.Showsthecombinationsoftwogoodsthatcanbeproducediftheeconomyusesallofitsresourcesfullyand

efficiently

2.PointsInsidetheFrontier

a.Resourcesarenotbeingusedfullyorefficiently

3.PointsoutsidetheFrontier

a.Unobtainableatthistime

b.Maybeobtainedinthefuturebecausethefrontiermayshift

4.FactorsthatCauseaShift

a.Changesintheamountofresourcesintheeconomy

i.populationgrowth/decline

ii.newterritoriesacquired

iii.devastatingwarorweather

b.Changesintechnologyandproductivity

i.governmentregulationortradition

G.LawofIncreasingCosts

1.LawofIncreasingCosts

a.Asmoreofaproductisproduced,theopportunitycostincreases

2.ProductionPossibilitiesFrontier

a.Linethatiscurvedconcavetotheorigin

3.Cause/Reason

a.Someresourcesaremoreadeptattheproductionofonegoodthananother

b.Theopportunitycostofproducingagoodbecomesgreaterasmoreresourcesareforcedintoindustrieswhere

theyarenotasproductive

H.ComparativeAdvantage

1.TheLawofComparativeAdvantage

a.DavidRicardo1800s

b.Anapplicationofopportunitycost

c.Advocatesspecializationforincreasedoutput

d.Formsthebasisforthewidespreadsupportoffreetrade

2.AbsoluteAdvantage

a.Theabilitytoproducesomethingmoreefficiently

3.ComparativeAdvantage

a.Theabilitytoproducesomethingwithaloweropportunitycost

4.Implications

a.Tradecanbemutuallyadvantageoustobothcountriesevenifonecountryhastheabsoluteadvantageinall

products

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Chapter2:TheDisciplineofEconomicsAPMicroeconomicsChapterOutlinesStudyNotes

How to cite this note (MLA)

Aboukhadijeh,Feross."Chapter2:TheDisciplineofEconomics"StudyNotes.org.StudyNotes,LLC.,12Oct.2013.Web.05
Dec.2015.<https://www.apstudynotes.org/microeconomics/outlines/chapter-2-the-discipline-of-economics/>.

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