Gretel's AP Macroeconomics Blog

PRICE ELASTICITY OF DEMAND : -measure of how consumers react to a change in price •ELASTIC DEMAND •INELASTIC DEMAND •UNITARY ELASTIC DEMAND ELASTIC DEMAND : -demand that is VERY sensitive to a change in price - E > 1 - product is not a necessity, there are available substitutes - ex: soda, steak, fur coat INELASTIC DEMAND : - E < 1 - demand that is NOT sensitive to a change in price - product is a necessity - few or no substitutes -ex: insulin, milk, gas, salt UNITARY ELASTIC DEMAND : - E = 1 PED: - S1: quantity new- old ———- old - S2: price new- old ———— old -S3: % in quantity         ——————         % in price

Macroeconomics vs. Microeconomics Microeconomics- the study of individual parts of the economy (looking at the tree instead of the forest)  Macroeconomics- the study of the economy as a whole (everything from GDP, etc,) Positive vs. Normative Economics Positive claims attempt to describe the world as is( example-minimum wage laws causes unemployment....fact-based) Normative claims that attempt to prescribe how the world should be(example-the government should raise the minimum wage....opinion-based) Scarcity vs. Shortage Scarcity is the fundamental economic problem that all societies face (how to satisfy unlimited wants with limited resources). Shortage-exist when QD (quantity demanded) > QS (quantity supplied) Capital Goods vs. Consumer Goods Capital Goods- Items used in the creation of other goods Consumer Goods- Goods that are intended for final use for the consumer Services- Work performed by one person for another Factors

Production Possibilities Graphs show alternative ways to use resources in an economy. The curve of the graph is called the PPC (Production Possibilities Curve) or PPF (Production Possibilities Frontier).                                               Inside of the Curve- Point A Recession Underemployment Unemployment Attainable On the Curve- Point B Efficient Attainable Outside of the Curve- Point C Needs economic or technological growth to achieve Currently unattainable 3 Types of Movement on PPC Inside the PPC Along the PPC Shifts of the PPC Key Assumptions of the PPC Only two goods are produced Fixed Resources Fixed Technology Full Employment (4%-5% unemployment and 90% factory capacity) No International Trade