AP Macroeconomics                 Mr. Crawford

UNIT TWO
ADAM SMITH and the MARKET SYSTEM
REVIEW NOTES

Assessment Structure:

  • 40 Multiple Choice questions (1 point each)
  • 1 Brief with Graph (10 points)

Content:
  • THE FOUR FUNDAMENTAL QUESTIONS
  • TRADITIONAL SYSTEMS
    • BARTER
  • ADAM SMITH and CAPITALISM
  • GREED
    • PROFIT MOTIVE
  • PRIVATE PROPERTY
  • FREEDOM OF CHOICE
  • MARKETS
  • COMPETITION
  • NO GOVT
    • "LAISSEZ FAIRE"
    • "INVISIBLE HAND"
  • CAPITALISM
    • SPECIALIZATION
    • CAPITAL
    • MONEY
  • CONSUMER SOVEREIGNTY
    • DERIVED DEMAND
DEMAND

Law of Demand

CHANGE IN P= CHANGE IN Qd

INVERSE

  • DMU
  • YFX
  • SFX

CHANGE IN NPD= CHANGE IN D

  • TASTES
  • INCOME
  • MORE OR FEWER BUYERS
  • EXPECTATIONS
  • RELATED GOODS' PRICES
    • SUB=SAME
    • COMP=OPPOSITE

CHANGE IN D= PQ

CHANGE IN D= PQ

 SUPPLY

Law of Supply

 CHANGE IN P =  CHANGE IN Qs

DIRECT

  • DMR/IC
  • P X Q = TR

CHANGE IN NPD= CHANGE IN S

  • GOVERNMENT
    • TAXES/SUBSIDIES
    • PRICE CONTROLS
  • OTHER PROFIT OPPORTUNITIES
  • NUMBER
  • INVESTMENT IN TECHNOLOGY
  • COST OF RESOURCE
  • EXPECTATIONS

CHANGE IN S= PQ

CHANGE IN S= PQ

 
VOCABULARY

TRADITIONAL

BARTER

COINCIDENCE OF WANTS

CASCADE FAILURE

COMPARATIVE ADVANTAGE

ABSOLUTE ADVANTAGE

GAINS FROM TRADE

CAPITALISM

INVISIBLE HAND

SPECIALIZATION

CONSUMER SOVEREIGNTY

DEMAND

LAW OF DEMAND

QUANTITY DEMANDED

DEMAND CURVE

DEMAND SCHEDULE

SUBSTITUTION EFFECT

INCOME EFFECT

DIMINISHING MARGINAL UTILITY

NON-PRICE DETERMINANTS

T.I.M.E.R.

SUBSTITUTE

COMPLEMENT

SUPPLY

LAW OF SUPPLY

QUANTITY SUPPLIED

SUPPLY CURVE

SUPPLY SCHEDULE

LAW OF INCREASING COSTS

G.O.N.I.C.E.

MARKET EQUILIBRIUM

SURPLUS

SHORTAGE