Scarcity means our wants are unlimited but the resources to satisfy them are limited, so every person and every society has to choose. Sort real resources into the factors of production, plan a Saturday with limited hours and money to see what each choice really costs, then drill the vocabulary AP uses to describe economic statements.
Part A covers the resources an economy uses. Part B shows scarcity and opportunity cost for one person. Part C practices positive vs. normative and micro vs. macro.
Net value = what the activity is worth to you, plus any pay, minus any money it costs. Pay from a shift arrives next week, so it cannot fund this weekend. Options you cannot afford are greyed out.
Scarcity is permanent: resources are limited and wants are not, so it applies to every economy and almost every good. A shortage is a temporary market condition where quantity demanded is greater than quantity supplied at the current price. A higher price ends a shortage; nothing ends scarcity.
The resources used to make goods and services. Land earns rent, labor earns wages, physical capital earns interest, and entrepreneurship earns profit. Human capital is the skill inside labor. In economics, capital means tools, machines, and buildings, not money.
Every choice under scarcity is a trade-off. The opportunity cost of a choice is the value of the next best alternative you give up, not the total of every option you skipped. It includes money spent and the value of time. Choose an option when its benefit is at least its opportunity cost.
Every society must decide what to produce, how to produce it, and who gets it. A market economy answers through prices and individual choices. A command economy answers through government planning. Real economies are mixed: mostly markets, with some government decisions.
Micro studies individual households, firms, and single markets, such as the price of coffee or how many workers a bakery hires. Macro studies the whole economy: real GDP, the price level, inflation, unemployment, and growth.
A positive statement describes how the economy works and can be tested with evidence, even if it turns out false. A normative statement is a value judgment about what ought to be. Words like "should", "ought", "fair", "too high", and "better" signal normative.
Memorize the factor, a clear example, and the payment it earns. The last row is the trap AP writers like most.
| Factor | What it is | Examples | Payment (income) |
|---|---|---|---|
| Land | Natural resources, not made by people | Farmland, oil and minerals, forests, rivers, fish | Rent |
| Labor | Human time and effort used in production | A programmer's hours, a cashier's shift | Wages |
| Physical capital | Human-made goods used to produce other goods | Tractors, factory buildings, delivery trucks, computers in an office | Interest |
| Human capital | Knowledge and skills that raise a worker's productivity | A nurse's training, a welder's skills, a college degree | Higher wages for the worker |
| Entrepreneurship | Organizing the other factors and taking business risk | A founder launching a startup, an inventor bringing a product to market | Profit |
| Financial capital (not a factor) | Money and financial assets used to buy resources | Cash, bank deposits, stocks, bonds | Not counted as a factor payment |
AP-style multiple choice. Pick an answer to see the explanation.
The vocabulary for topic 1.1. Read the list, flip through flashcards, or quiz yourself. For every term in the unit, see the Unit 1 terminology guide.