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1、AP ECONOMICS,Cherie S,FinancialAnalyst,Economics,Why AP?,College level courseGrant student creditHigher chances for college enrollment,About the test,About the test,1. Basics of Micro-econ,Economics defined,Economics studies how resources are used and how can be used to their fullest potential.Macro
2、economics: involves economic problems concerned by the nation.Microeconomics: concerns the economic problems faced by individuals, or firms.,Microeconomics,Positive vs. normative economics,Positive economics: is based on the scientific methods, Normative economics: involves ones value judgments, per
3、sonal opinions, and not based on a scientific investigation.Neither of these two has superiority.,Resources,A resource is anything that can be used to produce a good or service. It includes:Land: all natural resources.Labor: all human attributes that are productive, eg. labor force, labor time, inte
4、llectual capability, etc.Capital: productive equipment or machinery, eg. factory, computers, paper clips, etc.,Opportunity cost,Op cost is what must be sacrificed to obtain something.In the macroeconomics, op cost is: if a nation decides to produce one more unit of product A, how many units of produ
5、ct B will have to be sacrificed?E.g. opp cost of guns = 1.67 pounds butter/gunOr opp cost of butter = 0.6 guns/butter,Production possibilities frontier,Guns,Butter,18,30,All the points along the frontier are equal: A, B, CPoints inside the frontier, D: resources are not fully used.Points outside the
6、 frontier, E: cannot be reached.,B,A,C,D,E,Production possibilities frontier shifts,Two factors cause the frontier to shift: Changes in the amount of resources:Land: new territory found, oil exploitationLabor: population growth, Capital: place new equipment Changes in technology and productivity.Pos
7、itive change: , reach “E”Negative change: , reach “D”,Law of increasing costs,Guns,Butter,15,25,B,A,As more of a product is produced, its op cost increases.When the resources are shifted from butter to gun production, not many more guns are produced, but a lot of butter must be sacrificed. The op co
8、st of producing guns becomes high.When resources are forced to work in an industry where they are not proficient, they are less productive, and the op cost of producing a good becomes greater.,Comparative advantage,Absolute advantage: the production can be made more efficiently.Comparative advantage
9、: a nation can produce the good with a lower op cost.Portugal has an absolute advantage over England in both wheat and cloth production.But trade can still be beneficial to both countries even if Portugal has the absolute advantage.As trade is based on comparative advantage, not absolute advantage.,
10、Comparative advantage,England has lower op cost in wheat, Portugal has lower op cost in cloth.Each country produced only the good with comparative advantage (lower op cost) and traded for the other good.,Specialization: each given 120 hrs,Trade is beneficial to all parties even when one party has an
11、 absolute advantage in everything.,2. Demand and Supply,Demand and Supply,DemandLaw of demandDemand curveDeterminants of DemandShift in demand and move along demandSupply Law of supplySupply curveDeterminants of supplyShift in supply and move along supplyEquilibriumPrice controlPrice ceilingPrice fl
12、oor,Demand,The Demand Functionthe quantity of demanded depends on income, the prices of other goods, as well as other factors Law of Demanddemand decreased as the price increased,Demand,Determinants of DemandPrice of productConsumers incomeConsumer tastesPrices of substitute productsPrices of comple
13、mentary productsExpected future price of the product,Supply,The Supply FunctionThe quantity supply depends on the selling price ,the costs of production which depend on technology, the cost of labor, and the cost of other inputs into the production process. Law of supplysupply increased as the price
14、 increased,Determinants of SupplyPrice of the productThe number of sellers (providers, suppliers)Costs of resources or productionPrices of substitute goods (goods that are also produced or could be using similar resources)Price expectationsTechnologyTaxes/subsidies,Supply,Shifts in and Movements alo
15、ng Demand and Supply Curves,Movements along demand and supply curves.沿着需求（供给）曲线移动A change in the market price that simply increases or decreases the quantity supplied or demanded is represented by a movement along the curve.Shifts in demand and supply curves.需求（供给）曲线本身发生移动A change in one of the inde
16、pendent variables other than price will result in a shift of the curve itself.,Shifts in Demand and Supply Curves,Change in Quantity Demand,Change in Quantity Supplied,Movements along Demand and Supply Curves,Market Equilibrium,Equilibrium price and the equilibrium quantityWhen have a market supply
17、and market demand curve for a good, we can solve for the price at which the quantity supplied equals the quantity demanded. We define this as the equilibrium price and the equilibrium quantity.E: market equilibrium. At the price, the quantity of supply=the quantity of demand. D:买方对每个产量愿意支付的最高价格；S:卖方
18、对每个产量愿意出售的最低价格;E:买方愿意支付的最高价格=卖方愿意出售的最低价格,Movement toward Equilibrium,If the price is above its equilibrium level, the quantity willingly supplied exceeds the quantity consumers are willing to purchase, and we have excess supply. Suppliers willing to sell at lower price will offer those prices to con
19、sumers, driving the market price down towards the equilibrium level.If the market price is below its equilibrium level, the quantity demanded at that price exceeds the quantity supplied, and we have excess demand. Consumers will offer higher prices to compete for the available supply, driving the ma
20、rket price up towards its equilibrium level.,Changes in Equilibria,Change in both D and S,Equilibrium,The Characteristics of Equilibrium,There is no tendency for changeThe demand function and supply function stay the same or constant.The amounts demanded equal the amounts supplied (at the intersecti
21、on of supply and demand).There is no surplus or shortage; the equilibrium price “clears” the market.,Price Ceilings,Price Ceilings,Price ceiling will lead to:Consumers may have to wait in long lines to make purchases. They pay a price (an opportunity cost) in terms of the time they spend in line.Sup
22、pliers may engage in discrimination, such as selling to friends and relatives first.Suppliers “officially” sell at the ceiling price but take bribes to do so.Suppliers may also reduce the quality of the goods produced to a level commensurate with the ceiling price. Black market,Price Floors,Price Floors,Price floor will lead to:Supply over demandCase: minimum wage causes unemployment,
