AP Macroeconomics Curriculum (At a glance by College Board)
Unit 1. Basic Economic Concepts
1.1 Scarcity
The resources used in the production process
: inputs, or factors of production
- capital
- labor (human capital)
- Entrepreneurship
- natural resources/land
Definition: Scarcity refers to the fundamental economic problem of having limited resources to meet unlimited wants and needs. Because resources such as time, money, labor, and raw materials are finite, not everyone can have everything they desire. This reality forces individuals, businesses, and governments to make choices about how to allocate these scarce resources.
Key Idea: Scarcity is the reason economics exists. Scarcity drives the need for prioritization and efficient use of resources. It forces people to make decisions about how to use limited resources. When they make these decisions, they face trade-offs because choosing one option means giving up another.
Examples:
•A student has a limited amount of time to study, so they must choose which subjects to focus on.•A government has a limited budget and must decide how much to spend on healthcare, education, and defense.
1.2 Opportunity Cost and the Production Possibilities Curve (PPC)
alternative sacrificed as compared to what actually takes place.
the combinations of the two goods that could be produced using all of the
available resources and technology.
•Efficiency in this context means that the economy is using all of its resources productively, as is true at every point on the PPF.
1.3 Comparative Advantage and Gains from Trade
- A country is said to have an absolute advantage in the production of a good when it can produce that good using fewer resources per unit output than another country.
- A country is said to have a comparative advantage in the production of a good when it can produce that good at a lower opportunity cost than another country.
- Absolute Advantage
- Definition: A country has an absolute advantage when it can produce more of a good using the same amount of resources as another country or can produce the same amount of a good with fewer resources.
- Example : 1) Country A can produce 10 cars or 5 computers in a given time. 2) Country B can produce 8 cars or 4 computers in the same time.
In this example, Country A has an absolute advantage in producing both cars and computers because it can produce more of both goods compared to Country B with the same resources.
- Comparative Advantage
- Definition: A country has a comparative advantage when it can produce a good at a lower opportunity cost compared to another country, even if it does not have an absolute advantage in producing that good.
- Understanding Opportunity Cost: Opportunity cost is what you give up to produce something else. In the context of trade, countries should specialize in producing goods where they have the lowest opportunity cost.
- Example Continued: 1) For Country A: The opportunity cost of producing 1 car is 0.5 computers (it gives up 0.5 computers to produce 1 car). The opportunity cost of producing 1 computer is 2 cars. 2) For Country B: The opportunity cost of producing 1 car is 0.5 computers (it gives up 0.5 computers to produce 1 car). The opportunity cost of producing 1 computer is 2 cars.
While Country A has an absolute advantage in both goods, Country B has the same opportunity cost.