AP Microeconomics 2017

Course Description/Rationale

AP Microeconomics is an introductory college-level course that focuses on the principles of economics that apply to the functions of individual economic decision-makers. The course also develops students’ familiarity with the operation of products and factor markets, distributions of income, market failure, and the role of government in promoting greater efficiency and equity in the economy. Students learn the use graphs, charts, and data to analyze, describe, and explain economic concepts.

The AP Microeconomics course provides students with an understanding of the principles of economics as they apply to individual decision-making units, including individual households and firms. The course examines the theory of consumer behavior, the theory of the firm, and the behavior of profit-maximizing firms under various market structures. Students evaluate the efficiency of the outcomes with respect to price, output, consumer surplus, and producer surplus. They examine the behaviors of households and businesses in factor markets, and learn how the determination of factor prices, wages, interest, and rent influence the distribution of income in a market economy. There are ample opportunities to consider instances in which private markets may fail to allocate resources efficiently and examine various public policy alternatives aimed at improving the efficiency of private markets.

Topic Outline for AP Microeconomics

1. Basic Economic Concepts
2. The Nature of Functions of Product Markets
1. Supply and Demand
2. Theory of Consumer Choice
3. Production and Costs
4. Firm Behavior and Market Structure
3. Factor Markets
1. Derived Factor Demand
2. Marginal Revenue Product
3. Hiring decisions in the markets for labor and capital
4. Market distribution of income
4. Market Failure and the Role of Government
1. Externalities
2. Public Goods
3. Public policy to promote competition
4. Income Distribution

New York State Learning Standard 4 – Economics

Standard 4: Economics Students will use a variety of intellectual skills to demonstrate their understanding of how the United States and other societies develop economic systems and associated institutions to allocate scarce resources, how major decision-making units function in the United States and other national economies, and how an economy solves the scarcity problem through market and nonmarket mechanisms.

The Advanced Placement Microeconomics course meets the New York State standards for Economics

1. The study of economics requires an understanding of major economic concepts and systems, the principles of economic decision making, and the interdependence of economies and economic systems throughout the world.
2. Economics requires the development and application of the skills needed to make informed and well-reasoned economic decisions in daily and national life.

Curriculum Map and Calendar

Advanced Placement Microeconomics Unit Outline

The AP Microeconomics curriculum is divided into various units and incorporates a combination of chapters from the source listed below:

Ray, Margaret A., et al. Krugman's Economics for AP. BFW/Worth Publishers, 2015.

Unit 1: Introduction to Economics

• Module 1: The Study of Economics
• Module 2: Introduction to Macroeconomics
• Module 3: The Production Possibilities Curve Model
• Module 4: Comparative Advantage and Trade

Unit 2: Product Markets, Demand and Supply

• Module 5: Supply and Demand: Introduction and Demand
• Module 6: Supply and Demand: Supply
• Module 7: Supply and Demand: Equilibrium
• Module 8: Supply and Demand: Price Controls (Ceilings and Floors)
• Module 9: Supply and Demand: Quantity Controls
• Module 46: Income Effects, Substitution Effects, and Elasticity
• Module 47: Interpreting Price Elasticity of Demand
• Module 48: Other Important Elasticities
• Module 49: Consumer and Producer Surplus
• Module 50: Efficiency and Deadweight Loss
• Module 51: Utility Maximization

Unit 3: Theory of the Firm

• Module 52: Defining Profit
• Module 53: Profit Maximization
• Module 54: The Production Function
• Module 55: Firm Costs
• Module 56: Long-Run Costs and Economies of Scale
• Module 57: Introduction to Market Structure
• Module 58: Introduction to Perfect Competition
• Module 59: Graphing Perfect Competition
• Module 60: Long-Run Outcomes in Perfect Competition
• Module 61: Introduction to Monopoly
• Module 62: Monopoly and Public Policy
• Module 63: Price Discrimination
• Module 64: Introduction to Oligopoly
• Module 65: Game Theory
• Module 66: Oligopoly in Practice
• Module 67: Introduction to Monopolistic Competition
• Module 68: Product Differentiation and Advertising

Unit 4: Factor Markets

• Module 69: Introduction and Factor Demand
• Module 70: The Markets for Land and Capital
• Module 71: The Market for Labor
• Module 72: The Cost-Minimizing Input Combination
• Module 73: Theories of Income Distribution

Unit 5: Market Failure and the Role of Government

• Module 74: Introduction to Externalities
• Module 75: Externalities and Public Policy
• Module 76: Public Goods
• Module 77: Public Policy to Promote Competition
• Module 78: Income Inequality and Income Distribution

Advanced Placement Microeconomics

Unit 1: Introduction to Economics

Content:

The focus of this unit is scarcity. The study of microeconomics requires students to understand the existence of limited resources along with unlimited wants results in the requirement to make choices. We will examine some methodological questions in economics and cover such concepts as scarce resources, unlimited wants, and tradeoffs in decision-making, which can be illustrated by the production possibilities curve or other analytical examples. We will analyze the different economic systems – market, command and traditional – how the different economies determine which goods and services to produce, how to produce them, and to whom to distribute them. It is also important that students understand why and how specialization and exchange increase the total output of goods and services. Students will need to distinguish between absolute and comparative advantage.

Unit Objectives:

Students will be able to:

1. Describe and analyze the “economic way of thinking”
2. Describe the methodology used in economics
3. Define scarcity, choice, and cost
4. Identify the conditions that give rise to the economic problem of scarcity
5. Graph and interpret data
6. Graph and distinguish between constant and variable relationships
7. Define and compute opportunity cost
8. Distinguish between positive and normative economics
9. Construct a Production Possibilities Curve from sets of hypothetical data
10. Analyze the significance of different locations on, above or below a Production

Possibilities Curve

11. Describe and analyze the economic goals of different economic systems
12. Analyze the advantages and disadvantages of different economic systems
13. Explain ways in which societies determine allocation, efficiency, and equity

Key Ideas:

1. Productive resources are limited. Therefore, people cannot have all the goods and services they want; as a result, they must choose some things and give up others.
2. Different economic systems allocate resources and goods and services in different ways.
3. The Logic of Individual Choice: MSC = MSB
4. Markets are a good, but not perfect, way to allocate resources.  
5. Two simple models -the circular flow and the production possibilities frontier can explain many complex economic concepts.  
6. Everyone can benefit when people trade with one another.  

Key Questions:

1. Why study economics?
2. How does the use of graphs help to represent economic relationships?
3. What is the economizing problem?
4. How do different economic systems determine an economy’s ability to cope with economic scarcity?
5. How do economists use marginal analysis?
6. What are the elements of a Circular-Flow diagram?
7. How is the Production Possibilities Frontier related to opportunity cost?  
8. How are the concepts of absolute advantage and comparative advantage similar and different?

Activities:

1. Island Simulation Activity
2. Production Possibilities Curve Practice Problems
3. Circular Flow Model Activity
4. www.albert.io.com Unit 1 Review Questions

Unit 2: Demand and Supply

Content:

The unit specifically requires an analysis of the determinants of supply and demand and the ways in which changes in these determinants affect equilibrium price and output. Students will be required to understand the difference between a movement along the curve and a shift in the curve. Supply and Demand are tools for understanding a wide variety of specific issues as well as the operation of the entire economic system. Emphasis will be placed on the process by which equilibrium price and quantity are determined and the impact of government policies such as price floors, price ceilings, taxes, tariffs, and quotas. The next area examines consumer choice. By examining the demand side of the product market, students learn how incomes, prices, and tastes affect consumer purchases. Students learn how the income and substitution effects determine the shape of the demand curve. Students are also expected to comprehend the concepts of price and income elasticities and apply the concept of elasticity to the analysis of real-world problems.

Unit Objectives:

Students will be able to:

1. Define and analyze the Law of Demand
2. Graph and interpret a change in demand and a change in quantity demanded
3. Define and analyze the Law of Supply
4. Graph and interpret a change in supply and a change in quantity supplied
5. Explain how Demand and Supply interact to determine prices in a market economy.
6. Distinguish between a normal and inferior good
7. Distinguish between a substitute and complementary good
8. Analyze and graph the effect of a price ceiling or price floor in a market
9. Measure elasticity using percentage changes in quantity caused by price changes
10. Use demand/supply graphs to show the effect of differences in elasticity
11. Define Diminishing Marginal Utility and explain how the Law of Diminishing

Marginal Utility affects a downward sloping Demand curve

12. Apply the utility-maximizing rule
13. Given a demand/supply graph, identify/calculate the area of consumer

surplus/producer surplus

Key Ideas:

1. A demand curve is all the prices and quantities at which consumers which to purchase a good or service.   The law of demand states that consumers will want to buy more at a lower price and less at a higher price.
2. A change in quantity demanded is a movement along the demand curve and can be caused only by a change in the price of the good or service.  A change in demand is a shift in the curve whereby more or less is demanded ate every price.
3. A supply curve is all the prices and quantities at which producers are willing to sell a good or service.  Producers want to sell more at a higher price and less ate a lower price.
4. A change in quantity supplied is a movement along the supply curve and can be caused only by a change in the price of the good or service.  A change in supply is a shift of the curve whereby more or less is supplied at every price.
5. In a market system supply and demand interact to determine equilibrium price.  This price is where quantity supplied is equal to quantity demanded.  
6. At a price higher than the equilibrium, there is a surplus.  At a price lower than equilibrium, there is a shortage.
7. Elasticity measures the responsiveness of buyer and sellers to variables such as prices and income.  
8. The concept of elasticity allows us to make quantitative observations about the impact of changes in supply and demand on equilibrium prices and quantities.  
9. Government policies affect price and quantity.

Key Questions:

1. Why does the demand curve slope downward? Why does the supply curve slope upward?
2. How does a change in demand differ from a change in quantity demanded?
3. How does a change in supply differ from a change in quantity supplied?
4. How do we measure how much consumers alter their purchases in response to a price change?
5. Why are measures of elasticity important?
6. How do we measure how much producers respond to a price change?
7. What is meant by diminishing marginal utility and consumer equilibrium?
8. Why do taxes cause deadweight loss?
9. What is the significance of the theory of consumer choice?

Activities:

1.Marginal Utility experiment: M&M consumption

2. Elasticity Practice Problems
3. Supply and Demand Graphing Activity
4. www.albert.io Supply and Demand FRQ

Unit 3 Theory of the Firm

Content:

The study of the nature and functions of product markets includes production and costs, and market structures. In this unit we will address the part of economics known as industrial organization - the study of how firms’ decision about prices and quantities depend on the market condition they face. We will study the costs of production including an analysis of the short-run relationship between diminishing returns and marginal costs, and of the relationships between total, average, and marginal costs in the short and long run. The concept of cost minimization should also be introduced. Students will analyze the behavior of firms that can be classified into one of four market structures: perfect competition, monopoly, oligopoly, or monopolistic competition.

1. Costs of Production and Perfect Competition

Unit Objectives:

1. Define and differentiate among different businesses.
2. Define the concepts of firm and industry
3. Define and graph total fixed cost, total variable cost, average fixed cost, average

variable cost, average total cost and marginal cost

4. Define and plot total revenue, average revenue, marginal revenue and price
5. Define and differentiate between short run and long run and between fixed and

variable inputs

6. Explain the relationship between production and cost
7. Define and differentiate between explicit and implicit costs
8. Define and explain economies and diseconomies of scale and constant returns to scale
9. Define maximization of profits
10. Understand and apply the rule of profit maximization MR = MC
11. Define and identify profit, loss, the break-even point and the shutdown point
12. For Pure Competition:
13. Define and explain the conditions under which it functions
14. Construct marginal revenue/cost analyses to determine price and output
15. Determine the short-run and long run equilibrium
16. Identify the short-run market supply curve

Key Ideas:

1. Total Production vs. Marginal Production
2. Short Run: Diminishing MP
3. Fixed Cost
4. Variable Cost
5. Explicit Cost + Implicit Cost = Total Cost
6. Profits: Accounting vs. Economic
7. Industry vs. Firm
8. Competition: Assumptions
9. Output and Price Rule
10. Profits: Short Run and Long Run
11. Efficiency: Short Run and Long Run
12. Graphs: total product, marginal product and average product relationships
13. Graphs: short run costs: average-fixed, average-variable, and average-cost curves and marginal cost
14. Graphs: Total-cost/total revenue graph demonstrating profit maximization point
15. Graphs: competitive firm and a competitive industry
16. Graphs: economic profit, losses, and shutdown
17. Supply curve for the firm: using MR and MC

1. Imperfect Competition

Units Objectives:

Students will be able to:

1. Understand the characteristics of monopoly, oligopoly, and monopolistic competition
2. Determine the short-run and long run equilibrium for monopolistic competition
3. Describe the effects of different markets on the price of a product, the quantity of a

product, the allocation of society’s resources, the distribution of income and the rate

of technological progress

4. Distinguish between homogenous and differentiated Oligopoly
5. Define collusion and list the advantages and disadvantages of collusion
6. Describe the different types of non-price competition
7. Explain the theory of the regulated market place
8. Compare and contrast the effects of government regulation to make it more efficient
9. Compare and contrast product differentiation among the firms

Key Ideas:

1. Monopoly Assumptions:
2. Output and Price Rule
3. Limitations
4. Efficiency: Short Run and Long Run
5. Consumer Surplus and Price Discrimination
6. Monopoly Regulation
7. Oligopoly Assumptions:
8. Characteristics: Mutual Interdependence, Collusion
9. Game Theory: Nash Equilibrium, Prisoner’s Dilemma
10. Profit Matrix
11. Monopolistic Competition: Assumptions
12. Shared Demand
13. Entry/Exiting and Long-Run Equilibrium
14. Efficiency

Key Questions:

1. What are characteristics of each market structure?
2. How are profits and losses determined in each market structure
3. How does a firm’s cost of production determine its behavior?
4. What is the significance of marginal behavior?
5. How do firms determine the optimal level of output that maximizes profit?
6. How do perfectly competitive firms make output and pricing decisions?
7. How do monopolies make output and pricing decisions?
8. Why are monopolies inefficient
9. How do monopolies affect society’s well-being?  
10. How does monopolistic competition affect society’s welfare?  
11. What outcomes are possible under oligopoly?

Activities:

1. Cartel Activity
2. Game Theory Project
3. Market Structures Worksheet
4. Costs of Production Graphing Practice
5. www.albert.io Market Structures Multiple Choice Review

Unit 4: Factor Markets

Content:

The basic analytical framework in examining factor markets is similar to the supply and demand concepts developed earlier in the study of product markets. This unit deals with the similarities and differences between the market for outputs – the product market – and the market for inputs – the resource or factor market. When the markets for different factors are considered separately, most attention should be given to the labor market, particularly labor supply and wage and employment discrimination. For the factors of land and capital, students might examine the concept of economic rent and the relationship of the interest rate to the supply and demand for investment funds. The key concept in the study of the factor market is Marginal Productivity Analysis. This helps explain how wages, rent, interest and profit are determined.

Unit Objectives:

Students will be able to:

1. Describe the differences between product markets and factor markets
2. Define derived demand
3. Define Marginal Revenue Product
4. Given the appropriate data, construct a marginal revenue schedule for a resource in a

purely competitive market and in an imperfectly competitive market

5. Define Marginal Resource Cost
6. State the Profit-Maximizing principle used to determine how much of a given

resource a firm will use

7. Explain how the marginal productivity theory of resource demand applies to wage

rate determination

8.  Define and give examples of a competitive labor market and monopolistic labor market
9. Graph both competitive and monopolistic labor market, and explain how a minimum wage would affect both
10. Distinguish between interest, rent, wages and profits

Key Ideas:

1. Factor Demand
2. Derived Demand and Derivation of the MRP
3. Impact of Changes in Demand on MRP
4. The Supply of Labor and Wage Determination
5. Resource Pricing for Competitive and Monopsonistic Employers
6. Demand curve for labor
7. Minimum wage
8. Labor Unions

Key Questions:

1. Who are the buyers and sellers of resources?
2. How are resource prices determined?
3. How does a firm allocate its expenditures among the various resources?
4. What is the difference between a competitive and monopolistic labor market?
5. What is the significance of derived factor demand?
6. How do firms decide whether to continue to hire factors of production or not?
7. How do firms maximize profit in the factor market?
8. What is the significance of market equilibrium in the labor market?
9. What should government policy be in addressing the problem of economic inequality?

Activities:

1. Factor Market practice problems
2. Minimum Wage Activity
3. Income Distribution Seminar
4. Derived Demand Writing Assignment
5. www.albert.io Factor Market Practice FRQ

Unit 5: Market Failure and the Role of Government

Content:

It is important for students to understand the arguments for and against government intervention in otherwise competitive markets. In this unit, we will examine market failures due to negative and positive externalities, and analyze government microeconomic policies such as subsidies, taxes, and the provision of public goods. When markets are not efficient, governments can sometimes remedy market failure. To fund programs, governments raise revenue through their tax systems, which are designed with an eye toward balancing efficiency and equity.

Unit Objectives:

Students will be able to:

1. List the economic functions of government
2. Define public goods
3. Develop a rationale for determining which goods should be produced by the private

sector and which goods should be produced by the public sector

4. Develop a criteria for evaluating the effectiveness of government programs
5. Define and give examples of externalities and third-party costs
6. Explain overproduction and underproduction
7. Define and differentiate between the progressive, regressive, proportional, ability-to pay and benefits-received theories of taxation
8. Develop a criteria for evaluating the effectiveness and fairness of a tax

Key Ideas:

1. Public Goods
2. Positive Externalities and Spillover benefits
3. Negative Externalities and Spillover costs
4. Taxation and the three types of taxes: Progressive, Regressive, and Proportional
5. Tax incidence
6. Income Distribution and the Lorenz Curve

Key Questions:

1. What is the difference between economic regulation and social regulation?
2. Why and when does the government intervene in business activity?
3. Why do markets overproduce goods that create negative externalities?
4. Why do markets underproduce goods that create positive externalities?
5. Why must government provide public goods?
6. How can public policy be implemented to promote competition?
7. How can government taxing and spending policies change a society’s distribution of income?
8. What public policies aim to solve the problem of externalities?  
9. What are the efficiency costs of taxes?  
10. How can we evaluate the equity of a tax system?

Activities:

1. Market Failures Practice Problem Set
2. Externalities Worksheet
3. Cap and Trade Online Simulation
4. The Lorax Externalities Assignment
5. Tragedy of the Commons Activity
6. www.albert.io Taxation Practice Questions

Websites for AP Microeconomics

www.albert.io

With stimuli, supplements, and carefully thought out question stems, Albert encourages critical thinking and inquiry from students.

AP® Microeconomics Study Guide

Practice questions in Albert's AP® Microeconomics and review how individuals and firms make decisions in various situations of economic pressures.

Government Organizations and Statistical Information Websites

• The official website of the World Bank with recent research in areas of macroeconomics and economic growth

www.worldbank.org

• The Bureau of Economic Analysis deals with current estimates on National Economic Accounts

www.bea.org

• The official website of the Federal Reserve System

www.federalreserve.org

• The official website of the Federal Reserve Bank of New York

www.ny.frb.org

• The official website of the United States Department of the Treasury

www.treas.gov

• The official website of the White House and the office of the Executive Branch

www.whitehouse.gov

• The official website of the United States Department of Labor – The Bureau of Labor Statistics

www.blsa.gov

• The official website for the IRS – the US government agency responsible for tax collection and tax law enforcement.

www.irs.gov

• Inflation calculator created by NASA

www.jsc.nasa.gov/bu2/inflate.html

• The International Trade Commission Homepage- which provides trade policy recommendations to both the legislative and executive branches of government

www.usitc.gov

• The official website of the World Trade Organization – The only international body dealing with the rules of trade between nations

www.wto.org

Educational Resource Websites

• The National Council on Economic Education – A network promoting economic literacy and the integration of economics education for students

www.ncee.net

• EconEdLink – The National Council on Economic Education – offers   lesson plans, templates, current events, and other support for teachers

http://www.econedlink.org

• The Federal Reserve education website, including curriculum, newsletters, and other resources

www.federalreserveeducaiton.org

• PBS teacher’s source page

http://www.pbs.org/teachersource/soc_stud.htm

• A guide to regional economic activity with links to socioeconomic data sources, arranged by subject and provider, pointers to the Web’s premiere data collections, and our own list of the ten best sites for finding regional economic data.

http://econdata.net/

• Maryland Council on Economic Education – links for educators, including publications and official Fed Sites, stock market game, Fed Challenge information, and a newsletter

http://www.econed.org