AP/ECON 1000
Lesson 1: Scarcity, Opportunity Cost, Trade, Models
Scarcity
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Definition: Scarcity means we have limited resources but unlimited wants. Basically,
there's never enough of anything to go around.
Examples:
○ Time: Only 24 hours in a day, but so much to do!
○ Money: We often have less than we'd like to spend on everything we want.
Implications: Scarcity forces us to make choices about how to use our resources most
efficiently.
Opportunity Cost
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Definition: Opportunity cost is the value of the next best alternative you give up when
you make a choice.
Why It Matters: Helps us understand the real cost of our decisions.
Examples:
○ Going to College/UNI: The opportunity cost isn't just tuition; it's also the income
you could've earned if you worked instead.
○ Spending Time: Choosing to study means you can't hang out with friends. The
missed fun is your opportunity cost.
Trade
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Definition: Trade allows people to specialize in what they do best and exchange goods
and services with others.
Benefits:
○ Efficiency: Specialization makes production more efficient.
○ Variety: Trade increases the variety of goods available.
○ Economic Growth: Encourages innovation and competition.
Comparative Advantage:
○ Concept: A country (or person) has a comparative advantage if it can produce a
good at a lower opportunity cost than others.
○ Example: Even if one country is better at producing everything, both countries
can still benefit from trade by focusing on what they’re relatively better at.
**Economic Models**
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Purpose: Models simplify reality to help us understand economic concepts and predict
outcomes. AP/ECON 1000
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Types of Models:
○ Graphical Models: Use
graphs to show
relationships between
variables (e.g., supply and
demand curves).
○ Mathematical Models:
Use equations to represent
economic behaviors and
outcomes.
○ Verbal Models: Use words
to describe economic
concepts and relationships.
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Assumptions: All models make assumptions to simplify the complex real world. Key is
to know the limits and applicability of these assumptions.
Examples:
○ Supply and Demand Model: Shows how prices and quantities are determined in
a market.
○ Production Possibility Frontier (PPF): Illustrates trade-offs and opportunity
costs by showing the maximum combinations of goods that can be produced with
available resources.
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Key Takeaways
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Scarcity forces choices because resources are limited.
Opportunity cost is what you give up when you choose something else.
Trade benefits all parties involved through specialization and comparative advantage.
Models help us understand and predict economic behavior by simplifying reality.
Lesson 1: Scarcity Opportunity Cost Trade Models
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