No Bull Economics Lessons

Macroeconomics & Microeconomics Concepts You Must Know

Essential Questions

Why study economic theories and models?

Posted on February 1, 2016 at 11:45 AM Comments comments (0)

When you learn economics for the first time, you are really learning a new way of thinking about the world. Economic theories and models can help us understand peoples' behaviors and how to approach and solve all kinds of problems. This No Bull Review video goes over the importance of marginal thinking, opportunity costs, incentives, and why developing economic theories and models are so important.

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What is scarcity?

Posted on April 15, 2014 at 10:30 AM Comments comments (0)

Scarcity is the economic problem resulting from the limited nature of the four economic resources (factors of production). The scarce economic resources are land, labor, capital, and entrepreneurship. Every society must determine how it will allocate these scarce economic resources.


This No Bull Review video discusses the four factors of production and the resource payments required to obtain the scarce resources.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is the law of diminishing marginal utility?

Posted on April 15, 2014 at 10:20 AM Comments comments (0)

The law of diminishing marginal utility states that as you consume more of a good, your additional happiness from consuming one more unit falls. For example, you just ate your fourth taco and realize that the third taco gave you more additional satisfaction than the fourth. That's because of diminishing marginal utility. Say you just completed your seventh year of marriage, and realize that your additional happiness gained in the seventh year is less than the additional happiness gained in the sixth year. That's because of diminishing marginal utility.


Your total utility or total happiness increases as you consume more units of a product, however, the rate that your total utility increases will fall at some point. That is diminishing marginal utility.


Value lies at the margin: Water will give you more total satisfaction throughout your life than the diamonds that you own. However, the marginal utility of the last diamond you purchased is much greater than the last glass of water you drank. That idea along with the concept of scarcity explains why diamonds are so expensive and water is so cheap.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is an opportunity cost?

Posted on April 15, 2014 at 10:15 AM Comments comments (0)

An opportunity cost is the next best alternative for whatever you are doing at the moment. For example, right now you are looking at my website MrMedico.info. This is the best thing that you can be doing at the moment. If you had something better to do, you would be doing it! Your opportunity cost is the next best thing that you could be doing instead of reading about opportunity costs on my website. Wow, your life is pretty sad, isn't it? (lol, jk)


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What are the assumptions of a production possibilities frontier?

Posted on April 15, 2014 at 10:05 AM Comments comments (0)

The production possibilities model illustrates opportunity costs graphically. In this simplified model, we make the following assumptions:


1. Only two goods are produced

2. Resources are fixed

3. Technology is fixed

4. Full employment exists on the curve

5. Productive efficiency (producing at lowest cost) exists on the curve

6. Cannot produce beyond the curve in the present

7. Production inside the curve indicates that there are unemployed resources


This No Bull Review video shows you how to draw a PPC and label the key points.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is the law of increasing opportunity cost?

Posted on April 15, 2014 at 10:00 AM Comments comments (0)

The law of increasing opportunity cost applies to a production possibilities curve that bowed outward from the origin. For an economy to produce more of one good, it must sacrifice increasing quantities of the other good.


If opportunity costs were constant, then the PPC would be straight line.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is a surplus?

Posted on April 15, 2014 at 10:00 AM Comments comments (0)

A surplus occurs within a market when the quantity supplied exceeds the quantity demanded. Assuming no government price controls, a surplus is temporary and market forces will push the price back down toward equilibrium.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is a shortage?

Posted on April 15, 2014 at 9:55 AM Comments comments (0)

A shortage occurs in a market when the quantity demanded exceeds the quantity supplied. Assuming no price controls or disasters, a shortage is only temporary and market forces will push prices back up toward equilibrium.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

How do you find the comparative advantage?

Posted on April 15, 2014 at 9:45 AM Comments comments (0)

To determine which country has the comparative advantage in the production of a good, you must determine which country has the lowest opportunity cost (smallest sacrifice) in producing the good.


For example: If Nobully can produce 120 yak skin coats or 60 glockenspiels, then its opportunity cost of producing 1 yak skin coat is 1/2 glockenspiel (60 glockenspiels divided by 120 yak skin coats). If Medicoa can produce 60 yak skin coats or 120 glockenspiels, its opportunity cost of 1 yak skin coat is 2 glockenspiels (120 glockenspiels divided by 60 yak skin coats). Nobully has the comparative advantage in yak skin coat production because its opportunity cost (1/2) is less than Medicoa's opportunity cost (2).


The No Bull Review video below explains how to calculate absolute advantage, comparative advantage, and terms of trade using charts and production possibilities curves. You will learn how to develop your own chart to make these problems easy to solve.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

How do you find the absolute advantage?

Posted on April 15, 2014 at 9:40 AM Comments comments (0)

To determine which country or economy has the absolute advantage in the production of a good, you simply look to see which country can produce more. If Nobully can produce 120 yak skin coats and Medicoa can only produce 60 yak skin coats, then Nobully has the absolute advantage in yak skin coats.


You can also determine absolute advantage by seeing which country can produce one unit faster or one unit with the least amount of economic resources.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

How does the law of supply and the law of demand work?

Posted on April 15, 2014 at 9:35 AM Comments comments (0)

In a market, buyers and sellers come together to establish prices and quantities of goods and services. The law of supply consists of a direct relationship between price and quantity and the law of demand consists of an inverse relationship between price and quantity. When the supply and demand curves intersect, a market equilibrium is established. Assuming no externalities exists, the intersection of supply and demand is allocatively efficient.


The No Bull Review video below shows you how the laws of supply and demand work in a market.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is a command economy?

Posted on April 15, 2014 at 9:30 AM Comments comments (0)

A command economy occurs when central planners (not markets) make all of the economic decisions. The planners determine what will be produced, how many units will be produced, and for whom the goods will be produced for. Command economies in practice are highly inefficient compared to market economies.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is a market economy?

Posted on April 15, 2014 at 9:30 AM Comments comments (0)

A market economy exists when buyers and sellers allocate scarce economic resources. The laws of supply and demand decide what goods are produced, how goods are produced, and for whom the goods are produced for. The market decides the prices and quantities of goods and services.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

How are macroeconomics and microeconomics different?

Posted on April 15, 2014 at 9:25 AM Comments comments (0)

Economics is a social science that deals with the problem of scarce economic resources and incentives. Macroeconomics looks at the economy as a whole (GDP, unemployment, inflation, fiscal policy, monetary policy, etc.). Microeconomics looks at individual economic units (the firm, perfectly competitive market, monopoly, oligopoly, labor market, etc).


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What are the effects of a price floor?

Posted on April 15, 2014 at 9:15 AM Comments comments (0)

A price floor is a government price control that should be placed above market clearing equilibrium price to be effective. A floor price is a legal minimum price that aims to help low income producers.


A price floor is inefficient because it misallocates economic resources and leads to a surplus of goods (the quantity supplied is greater than the quantity demanded). It creates deadweight loss. The area of consumer and producer surplus is no longer maximized as a result of a price floor.


Watch this No Bull Review video on price floors to see the effects within a market.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

Why is the demand curve downward sloping?

Posted on April 15, 2014 at 9:10 AM Comments comments (0)

The demand curve slopes downward for the following three reasons:


1. Law of diminishing marginal utility - As you purchase an additional unit, your additional satisfaction decreases. Therefore, the price must fall for you to want to purchase more.

2. Substitution effect - As the price of a good increases, you look for cheaper alternatives to purchase.

3. Income effect - As the price of a good increases, your income has less purchasing power and you cannot afford to purchase as much.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What happens when the demand and supply curves shift at the same time?

Posted on April 15, 2014 at 9:00 AM Comments comments (0)

When the supply and demand curves shift at the same time, the change in market price or quantity will be indeterminate (increase, decrease, or stay the same). For example: when supply and demand both increase (shift to the right), the equilibrium quantity will increases, but market price will be indeterminate.


See the No Bull Review chart below for a complete summary of what happens to market equilibrium after dual shifts occur.


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What is the difference between a change in supply and quantity supply?

Posted on April 15, 2014 at 8:55 AM Comments comments (0)

The law of supply states that as the price increases, the quantity supplied will increase. A change in quantity supplied occurs when the price of the product changes. This means that you move point-to-point along the supply curve.


A change in supply refers to a shift of the entire supply curve. This is caused by a change in the determinants of supply.


Change in quantity supplied: point-to-point movement along supply curve

Change in supply: shift of the supply curve


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

How is a change in quantity demanded different from a change in demand?

Posted on April 15, 2014 at 8:50 AM Comments comments (0)

The law of demand states that as the price decreases, the quantity demanded will increase. A change in quantity demanded occurs when the price of the product changes. This means that you move point-to-point along the demand curve.


A change in demand refers to a shift of the entire demand curve. This is caused by a change in the determinants of demand.


Change in quantity demanded: point-to-point movement along demand curve

Change in demand: shift of the demand curve


AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

What are the effects of a price ceiling?

Posted on April 14, 2014 at 6:50 PM Comments comments (0)

A price ceiling is a price control set by the government. A ceiling is a legal maximum price that must be below the free market equilibrium. The government's intent is to help consumers with low incomes. An effective price ceiling leads to a shortage of goods (quantity demanded is greater than the quantity supplied). It causes a misallocation of economic resources and deadweight loss (inefficiency). In the long run, the shortage worsens as producers exit the industry. Sometimes illegal markets (black markets) will develop to attempt to satisfy the high quantities demanded.


The No Bull Review video below discusses the effects of price ceilings and shows the areas of deadweight loss, consumer surplus, and producer surplus.

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AP Macroeconomics / Microeconomics Unit 1 Basic Economic Concepts


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