AP Microeconomics
AP Microeconomics is a yearlong course designed to introduce basic economic
concepts and economic reasoning. Topics include: the structure of markets; the
theory of the firm; product market models; the factor market; market failures and the
role of government in the economy; specialization based on comparative advantage;
and international trade. The course emphasizes the application of economic
principles and theories to analyze international, national, and local events and
trends. It studies the behavior of individual households and firms within individual
markets.
Textbooks
Mankiw, N. Gregory, Principles of Microeconomics, Ohio: South-Western Cengage
Learning, 2008
Course Expectations
Class preparation and participation are important, and regular class attendance is
absolutely necessary. You are responsible for all assignments and material
presented in class as well as for all material included in the reading lectures, class
discussion, exercises, and videos. You are expected to read all assignments carefully
before class and to be prepared to discuss them. Some material will seem very
straightforward, but economic principles are often deceptively complex. There is
often a difference between simply reading and fully understanding the material. The
study of economics can be fascinating, fun, confusing, and frustrating, sometimes all
at the same time! To minimize confusion and frustration it is necessary to work with
and experience the application of economic principles in addition to reading about
them. This class will, therefore, require you to become active rather than passive
learners of Microeconomics.
Grading
You will be graded on Quizzes, Unit Tests, Essays, Problem Sets, & Homework.
Quizzes will be given occasionally to test your short-term knowledge of the material
presented. All unit exams will include multiple-choice and free-response questions
similar to those given on the actual AP exam. In the AP exam, students are expected
to show both analytical and organizational skills in writing the essays and to
incorporate diagrams that clarify his or her analysis. The unit exams are an
opportunity to practice these skills.
The grading scale is as follows:
A: 100 – 90 B: 89 – 80 C: 79 – 70 D: 69 – 60 F: 59 – 50
Helpful Strategies
1.
Never hesitate to ask me for helps. I sincerely want you to pass too!
2.
Review notes frequently.
3.
Don’t be alarmed if you do not master a concept immediately; Economics is
learned in layers. As the semester progresses, you will become more
proficient with concepts and better understand how they interrelate.
4.
Master graphs for supply and demand and types of firms—not only be able to
indentify the graphs, but also be able to draw from memory.
5.
Create Note cards.
6.
Keep materials in a binder—organization would be extremely beneficial as
well.
7.
Keep up with your reading—falling behind makes the course harder than
necessary.
8.
A lot time to study.
9.
You WILL adjust to the wording. Some vocabulary is unique to the study of
Economics. In addition, you will find that test questions are worded strangely
or seem complex. These test questions are similar to those you will encounter
on the AP exam. Making them easier would do you an injustice.
10.
Always keep your long-term goal in mind. Passing the AP exam saves time
and considerable money. At the UW-Madison, a 4 or 5 on the Micro means
you will receive four credits.
ADVANCED PLACEMENT MICROECONOMICS
TEST CONTENT (From the College Board Handbook)
I.
II.
% goals for exam
8 - 14%
Basic Economic Concepts
A.
Scarcity: the nature of economics systems
B.
Production possibilities curve
C.
Comparative advantage, absolute advantage, specialization, and trade
D.
Economic systems
E.
Property rights and the role of incentives
F.
Marginal analysis
The Nature and Functions of Product Markets
55 - 70%
A.
Supply and demand (15 - 20%)
1.
Market equilibrium
2.
Determinants of supply and demand
3.
Price and quantity controls
4.
Elasticity
a. Price, income, and cross-price elasticities of demand
b. Price elasticity of supply
5.
Consumer surplus, producer surplus, and market efficiency
6.
Tax incidence and deadweight loss
B.
Theory of consumer choice (5 - 10%)
1.
Total utility and marginal utility
2.
Utility maximization: equalizing marginal utility per dollar
3.
Individual and market demand curves
4.
Income and substitution effects
C.
Production and costs (10 - 15%)
1.
Production functions: short and long run
2.
Marginal product and diminishing returns
3.
Short-run costs
4.
Long-run costs and economies of scale
5.
Cost minimizing input combination
D.
Firm behavior and market structure (25 - 35%)
1.
Profit:
a. Accounting versus economic profits
b. Normal profit
c. Profit maximization: MR=MC rule
2.
Perfect competition
a. Profit maximization
b. Short-run supply and shutdown decision
c. Behavior of firms and markets in the short run and in the
long run
d. Efficiency and perfect competition
3.
Monopoly
a. Sources of market power
b. Profit maximization
c. Inefficiency of monopoly
d. Price discrimination
e. Natural monopoly
4.
Oligopoly
a. Interdependence, collusion, and cartels
b. Game theory and strategic behavior
Monopolistic competition
a. Product differentiation and role of advertising
b. Profit maximization
c. Short-run and long-run equilibrium
d. Excess capacity and inefficiency
5.
% goals for exam
III.
Factor Markets
A.
Derived factor demand
B.
Marginal revenue product
C.
Labor market and firms’ hiring of labor
D.
Market distribution of income
10 - 18%
IV.
Market Failure and the Role of Government
12-18%
A.
Externalities
1.
Marginal social benefit and marginal social cost
2.
Positive externalities
3.
Negative externalities
4.
Remedies
B.
Public goods
1.
Public versus private goods
2.
Provision of public goods
C. Public policy to promote competition
1.
Antitrust policy
2.
Regulation
D.
Income distribution
1.
Equity
2.
Sources of income inequality
AP MICROECONOMICS COURSE OUTLINE
Unit 1 - Basic Economic Issues
Assigned Reading - Chapters 1, 2, and 3
Objectives - The student should be able to:
1.
Define opportunity cost
2.
Define comparative and absolute advantage
3.
Describe and give examples of the law of comparative advantage
4.
Explain how both parties in a trade gain from voluntary exchange
5.
Describe and analyze the “economic way of thinking”
6.
Graph and interpret data
7.
Graph and distinguish among inverse, direct, and zero relationships
8.
Graph and distinguish between constant and variable relationships
9.
Identify the conditions that give rise to the economic problem of scarcity
10.
Identify the opportunity costs of various courses of action involving a
hypothetical problem
11.
Construct production possibilities curves from sets of hypothetical data
12.
Apply the concept of opportunity cost of a production possibilities curve
13.
Analyze the significance of different locations on, above, and below a
production possibilities curve
14.
Compare and contrast the effects of societal priorities on the slope, outer
limits, and operating points of production possibilities
15.
Know the difference between positive and normative statements
16.
Identify the three questions every economic system must answer
17.
Analyze the advantages and disadvantages of the three economic systems
(market, command, tradition)
18.
Describe and analyze the economic goals of different economies
19.
Determine the mix of tradition, command, and market systems in different
economies
20.
Apply scarcity concepts to a variety of economic situations
21.
Define specialization and exchange
22.
Describe the methodology used in economics
UNIT EXAM - Covers Chapters 1 - 3, APE Exercises
Unit 2 - Supply and Demand 1
Assigned Reading: Chapters 4, 5, and 6
Objectives - The student should be able to:
1.
Describe the behaviors of buyers and sellers in a competitive market place
2.
List and explain the determinants of individual demand
3.
List and explain the determinants of individual supply
4.
Define and distinguish between income and substitution effects
5.
Define Diminishing Marginal Utility and explain how the law of diminishing
marginal utility affects a downward sloping demand curve
6.
Define equilibrium
7.
Draw a graph of a supply and demand schedule from data
8.
Determine equilibrium price and equilibrium quantity when given demand and
supply of a good
9.
Explain why the price of a good and the amount of a good bought and sold in
a competitive market will be the equilibrium price and quantity. Explain and
show graphically the concepts of consumer and producer surplus
10.
Differentiate between a “change in demand” and a “change in quantity
demanded”
11.
Differentiate between a “change in supply” and a “change in quantity supplied
12,
Analyze factors and situations that cause supply and demand curves to shift
13.
Predict the effects of changes in demand and supply on equilibrium price and
equilibrium quantity and on the substitute and complementary goods
14.
Define price elasticity of demand
15.
Given changes in supply and/or demand, explain which curve has shifted and
in which direction.
16.
Distinguish between elastic and inelastic demand and derive an elasticity
coefficient.
17.
Explain the factors that make demand elastic or inelastic
18.
Determine the prices at which a product has elastic or inelastic demand by
observing how total revenue changes in response to a change in price
19.
Apply price elasticity of demand to economic problems
20.
Define and distinguish between an inferior and a normal good
21.
Explain the factors that make supply elastic or inelastic
22.
Analyze momentary, short-run, and long-run elasticity
23.
Define price ceilings and price floors
24.
Illustrate price ceilings and price floors on graphs
25.
Analyze the effects of price ceilings and price floors on competitive markets
and the consequences of government policies
26.
Describe the outcomes of price controls in terms of surpluses and shortages
27.
Describe and evaluate the arguments for and against price controls
28.
Understand how a tax on a good affects market equilibrium price and
quantity
29.
Recognize the equivalence of taxes imposed on buyers and sellers and know
how the burden of a tax is divided between buyers and sellers
UNIT EXAM 2 - Covers Chapters 4 - 6, APE Exercises
Unit 3 - Supply and Demand II - Markets and Welfare
Assigned Reading: Chapters 7, 8, and 9
Objectives - The student should be able to:
1.
Understand how consumer’ willingness to pay for a good determines the
demand curve
2.
Learn the concept of consumer surplus and how to measure it
3.
Understand how sellers’ costs of production determine the supply curve
4.
Learn the concept of producer surplus and how to measure it
5.
Recognize that market equilibrium maximizes total surplus in a market
6.
Understand how taxes reduce consumer and producer surplus
7.
Learn the causes and significance of the deadweight loss of a tax
8.
Know why some taxes have larger deadweight losses than others
9.
Understand the relationship among deadweight loss, tax revenue, and the
size of the tax
10.
Understand the basis of international specialization
11.
Learn who gains and who loses from international trade
12.
Understand the welfare effects of tariffs and quotas
13.
Evaluate the merits of arguments to restrict international trade
UNIT 3 EXAM - Covers Chapter 7 - 9, APE Exercises
Unit 4 - Economics in the Public Sector
Assigned Reading:
Chapters 10, 11, and 12
Objectives - The student should be able to:
1.
Learn the concepts of external costs and external benefits
2.
Understand why the presence of externalities can produce market failure
3.
Recognize when private agreement can effectively solve problems associated with
externalities
4.
Recognize when private agreement cannot adequately solve these problems
5.
Understand the various government policies that can solve these problems
6.
Understand the nature of public goods and common resources
7.
Know why private markets sometimes fail to supply public goods
8.
Learn some of the important public goods in our economy
9.
Understand the nature and limitations of cost benefit analysis as it applies to public
goods
10.
Know why common resources are overused
11.
Learn some of the important common resources in our economy
12.
Learn how the various governments in our economy raise and spend money
13.
Understand the efficiency cost of taxation
14.
Learn the criteria for evaluating the equity of a tax system
15.
Recognize that understanding tax incidence is important for evaluating tax issues
16.
Understand some of the tradeoffs between equity and efficiency in a tax system
UNIT 4 EXAM - Covers Chapters 10 - 12, APE Exercises
Unit 5 - Firm Behavior and the Organization of Industry
Assigned Reading:
Chapters 13, 14, 15, 16, and 17
Objectives - The student should be able to:
1.
Learn the items included in a firm’s cost of production
2.
Understand the relationship between the firm’s production process and total
costs
3.
Know the meaning of average total cost and marginal cost and how they are
related
4.
Be familiar with the shape of a typical firm’s cost curves
5.
Learn the relationship between short-run and long-run costs
6.
Know the characteristics of a competitive market
7.
Understand how competitive firms decide how much to produce
8.
Know when competitive firms shut down temporarily
9.
Learn what causes competitive firms to enter and leave a market
10.
Understand the determination of the market’s short-run and long-run supply
curves
11.
Learn the sources of monopoly
12.
Understand how a monopolist sets price and output to maximize profits
13.
Evaluate the efficiency of monopoly
14.
Learn some of the various public policies toward monopoly
15.
Understand how and why a monopolist would price discriminate
16.
Recognize market structures that are between competition and monopoly
17.
Know the equilibrium characteristics of oligopoly
18.
Understand the concept of the prisoners’ dilemma and how it applies to
oligopoly
19.
Learn how antitrust laws can increase competition in oligopoly markets
20.
Recognize imperfect competition among firms that sell differentiated products
21.
Understand the equilibrium characteristics of monopolistic competition
22.
Evaluate the outcomes of monopolistically competitive markets
23.
Understand the issues surrounding the effects of advertising
24.
Understand the debate over the role of brand names
25.
Compute the average, total, and marginal revenue when given the demand
schedule faced by a perfectly competitive firm
26.
Explain the profit-maximizing rule
27.
Define and graph total fixed cost, total variable cost, and marginal cost
28.
Compare perfect competition with imperfect competition
UNIT EXAM 5 - Covers Chapter 13 - 16
Unit 6 - Economics of Labor Markets
Assigned Reading: Chapters 17 and 18
Objectives - The student should be able to:
1.
Understand the firm’s demand for labor
2.
Learn why equilibrium wage rate is equal to the value of labor’s marginal
product
3.
Understand how land and capital are valued in the factor markets
4.
Know why a change in supply of one factor changes the earnings of all other
inputs
5.
Know how differences in job characteristics affect wages
6.
Understand the human-capital and signaling theories of education
7.
Recognize why in some occupations a few superstars earn extremely large
salaries
8.
Understand why it is difficult to measure the effect of discrimination on
earnings
9.
Understand some of the issues involved in the debate over comparable worth
as a system for setting wages
10.
Learn the extent of income inequality in our economy
11.
Understand the problems and limitations of measures of economic inequality
12.
Become familiar with some of the political philosophies of income
redistribution
13.
Know some of the policies and programs that attempt to transfer income
14.
Know the difference between product and factor markets
15.
Define derived demand
UNIT EXAM 6 - Covers Chapters 13-18
FINAL EXAM - CUMULATIVE EXAM ON CHAPTERS 1 - 18