Unit II: Supply, Demand - Community Unit School District 200

Wheaton North High School
AP Microeconomics
Fall 2014 Course Syllabus
Mr. Brian Zeglin
Classrooms: 3rd & 4th Periods – Room 108
Contact Info
Email: Brian.Zeglin@cusd200.org
Voicemail: (630) 784-7300 x 8543
Availability: Mr. Zeglin will be available before school (6:40-7:15am) daily in room 108 and after school by
appointment. Appointments can be made via email or in person before/after class.
Course Description
AP Microeconomics is an accelerated college level course delivering a comprehensive understanding of the principles
of economics that apply to the functions of individual decision makers [consumers and producers], within the larger
economic system. The semester course places primary emphasis on the nature and functions of product markets, factor
markets, and the role of government in promoting greater efficiency and equity in the economy. All students who
complete this course will be prepared for and should take the Advanced Placement test in Microeconomics on Friday,
May 15th, 2013.
Course Materials
- Economics – Principles, Problems, and Policies, 16th Ed. McConnell & Brue. McGraw-Hill. 2005 Edition
- Jevons, Marshall. Murder at the Margin, Princeton University Press, Jul 12, 1993.
- AP Economics Microeconomics: Student Activities, 3rd Ed. John Morton & Rae Jean B. Goodman, NCEE,
2005. Excerpts provided by Mr. Zeglin
- Favorite Ways to Learn Economics, 2nd Ed. Anderson, David & James Chasey. Thomas South-Western Corp.,
- Additional resources as recommended by instructor.
Grading Policy
Grades will be determined by the summation of points earned from exams, quizzes,
problem sets, and daily assignments. Your grade is not given; it is earned and will reflect
the effort YOU choose to put into this course. All assignments are weighted equally with
the exception of the final exam which is worth 20% of the overall grade. I will make
every effort to update grades every weekend via Student View. Any individual questions
concerning grades can be discussed with the instructor by making an appointment after
class or before/after school. Please do not interrupt class time with these questions.
Grading Scale
Class Policies
1. Always RESPECT one another, use APPROPRIATE behavior in class, & EFFICIENTLY use class time.
2. All work is considered late if it is turned in after the time the instructor has asked for it.
3. All assignments must have the student’s name clearly on it.
4. Students who have an excused absence will be allowed the same time frame plus one day to complete any
missed work. Please notify the instructor in advance if you know of an upcoming absence or of any extenuating
5. Major assignments such as problem sets, are due at the beginning of class, on the day they are due.
6. It is the student’s responsibility to be mindful of missing or absent work. Tests and quizzes must be made up
within a week of your return or will receive a zero.
by the school rules outlined in the handbook. (i.e. academic honesty p.40).
I. Basic Economic Concepts (8-14%)
Scarcity, choice, and opportunity cost
Production Possibilities Curve
Comparative advantage, absolute advantage, specialization, and trade
Economic systems: Free Market and Command Economies
Circular Flow Model
Property rights and the role of incentives
Marginal analysis
II. Supply, Demand & Consumer Choice (20-30%)
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
c. Total Revenue Test
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
Unit 1 – 3 Weeks
Chapters: 1, 2, 4, 6
Problem Set 1
ACDC Videos
Unit 2 – 4 Weeks
Chapters: 3, 20, 21
Problem Set 2
Sims. – Pearl Exchange
ACDC Videos
III. Costs of Production and Perfect Comp. (15-25%)
A. 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 and productive efficiency
B. Firm Behavior and Market Structure (5%-10%)
1. Profit:
a. Accounting versus economic profits
b. Normal profit or zero economic 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
Unit 3 – 4 Weeks
Chapters: 5 [75-78], 22, 23
Problem Set 3
Sims. – Links Lab
Marshmallow Tower
ACDC Videos
IV. Imperfect Competition (20-25%)
1. Monopoly
a. Sources of market power
b. Profit maximization
c. Inefficiency of monopoly
d. Price discrimination
e. Natural monopoly
2. Monopolistic competition
a. Product differentiation and role of advertising
b. Profit maximization
c. Short-run and long-run equilibrium
d. Excess capacity and inefficiency
3. Oligopoly
a. Interdependence, collusion, and cartels
b. Game theory and strategic behavior
c. Dominant strategy
d. Nash equilibrium
V. Factor Markets (10-18%)
A. Derived factor demand
B. Marginal revenue product
C. Hiring decisions in the markets for labor and capital
D. Market distribution of income
VI. Market Failure & 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
3. Lorenz Curve
Unit 4 – 3 Weeks
Chapters: 24, 25, & 26
Problem Set 4
Sims. – Candy Markets
Collusion and Cheating
ACDC Videos
Unit 5 – 3 Weeks
Chapters: 27 & 28
Problem Set 5
Sims. – Push-Up Machine
Special Delivery
ACDC Videos
Unit 6 – 2 Weeks
Chapters: 5, 30, 31
Problem Set 6
ACDC Videos
Microeconomics Concepts
Unit I: Basic Economic Concepts
Founding Principles
 Economizing Problem (Scarcity)
 Ceteris Paribus
 Trade-offs
 Opportunity Cost
 Rational Self-Interest
 Free-Market System (Invisible Hand)
 Laissez Faire
Types of Economics
 Microeconomics vs. Macroeconomics
 Positive Economics vs. Normative
Production Possibilities Curve (Frontier)
 Straight vs. Bowed PPC
 Underutilization, Full employment, and
unattainable (in short run)
 Law of Increasing Opportunity Costs
 3 Shifters of the PPC
 Consumer Goods vs. Capital Goods
 Effects of trade
Circular Flow Model (Chart)
 Product Markets
 Factor Markets
 Public Sector
Specialization and Trade
 Absolute Advantage
 Comparative Advantage
Unit II: Supply, Demand, &
Consumer Choice
 Law of Demand
 Market Demand Curve
 5 Determinants (Shifters) of Demand
 Normal Goods vs. Inferior Goods
 Substitutes and Compliments
 Law of Supply
 Market Supply Curve
 6 Determinants (Shifters) of Supply
Equilibrium and Efficiency (Graph)
 Equilibrium Price and Equilibrium
 Disequilibrium: Surplus and Shortage
 Consumer Surplus and Producers
Government Policies (Graphs)
 Price Floors (Above Equilibrium)
 Price Ceilings (Below Equilibrium)
 Excise Taxes
 Subsidies
 Tariffs
 Quotas
 Price Elasticity of Demand
 The Total Revenue Test (Graph)
 Price Elasticity of Supply
 Income Elasticity of Demand
 Cross-Price Elasticity of Demand
Consumer Choice
 Law of Diminishing Marginal Utility
 Substitution Effect
 Income Effect
 Marginal Benefit and Marginal Costs
 Marginal Benefit (Utility) per Dollar
 Utility Maximizing Rule (MU per
$1=MU per $1)
Unit III: Costs of Production &
Perfect Competition
Production is the creation of utility.
 Four Factors of Production
Economists vs. Accountants
 Total Revenue
 Explicit Costs
 Implicit Costs
 Economic Costs
 Economic Profit
Law of Diminishing Marginal Returns (Graph)
 Total Product and Marginal Product: 3
Stages of returns (Graph)
 Stage I: increasing returns
 Stage II: decreasing returns
 Stage III: negative returns
Costs of Production (Graphs)
 Fixed Costs
 Variable Costs
 Total Cost
 Per-Unit Costs- (AVC, AFC, ATC)
 Shifts in MC, ATC, AVC, and AFC.
 Marginal Costs
 Marginal Revenue
 Profit Maximization (MR=MC)
Long-Run Production Costs (Graph)
 Economies of Scale
 Returns to Scale
 Diseconomies of scale
Characteristics of Perfect Competition
 Price takers
 Demand = MR = Price
 Graph: Firm vs. Industry/Market
Short-Run vs. Long-Run (Graphs)
 Short-Run (Profit or Loss)
 Long-Run Equilibrium
 New Firms Enter and Exit
 Normal Profit
 Shutdown Decision (P<AVC)
Efficiency (Benefits of Competition)
 Productive Efficiency (P=Min
 Allocative Efficiency (P= MC)
Unit IV: Imperfect Competition
Characteristics of Monopolies
 Barriers to Entry
 MR Below Demand (Graphs)
 Elastic vs. Inelastic Range
 Profit-Maximizing Price and Quantity
 Natural Monopoly
Effects on Overall Economy
 Compared to Competitive Industry
 Dead-Weight Loss
Price Discrimination (Graph)
 Purpose and Results
 Graph (MR=D)
 Unregulated Price
 Fair Return Price
 Socially Optimal Price
 Taxes and Subsidies
Characteristics of Monopolistic Competition
 Long-Run Equilibrium (Graph)
 Excess capacity
 Non-price competition
 Product differentiation
 Advertising
Characteristics of Oligopolies
Kinked Demand Curve-Competitive Pricing
Game Theory (Chart)Collusion and Cartels
 Incentives to collude
 Incentives to cheat
Unit V: Resource Market
Demand for Labor
 Derived demand
 Marginal Revenue Product (MRP)
 Marginal Resource Cost (MRC)
Perfectly competitive Labor Market (Graph)
 Wage takers
 Perfectly elastic Supply of Labor
Monopsony (Graph)
Wages and Quantity compared to
perfectly competitive labor market
Labor Unions
 Goals and methods
Effects of Minimum Wage
Wage Differentials
 Investment in Human Capital
Demand and Supply of Loanable Funds
Unit VI: Market Failures &
Government Involvement
Definition and examples of Market Failures
Public Goods
 Free-Rider Problem
 Non-Excludability
 Non-Rivalry
Positive externalities/Spillover Benefits
 Marginal Social Benefit vs. Private
 Underallocation
 Government remedy
Negative Externalities/Spillover Costs (Graph)
 Marginal Social Cost vs. Private Cost
 Overallocation
 Government Remedy
 Common Pool Problem
 Solution: Pollution Credits/Externality
Income Distribution
 Lorenz Curve (Graph)
 Purpose of Government Transfers
 Three types of taxes: Prog. Reg. Prop.
Tax Incidences
 Price buyers pay
 Price sellers receive
 Tax revenue