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AP Microeconomics 2015-2016
UPDATED: Summer, 2015
WETC: Spring 2016
Textbook: Krugman’s Economics for AP, Copyright 2011 by Worth Publishers
I. Basic Concepts (8%-14%):
Key Concepts: Scarcity, Four Factors of Production, Opportunity
(My Unit I)
Costs, Production Possibilities Curves, Comparative Advantage,
Absolute Advantage, Microeconomics, Macroeconomics,
Specialization of Trade, Property Rights, Positive Economics,
Normative Economics, Business Cycle, Depression, Recession,
Expansions (recoveries), Aggregate Output, Employment,
Unemployment, Labor Force, Unemployment Rate, Inflation,
Deflation, Price Stability, Models.
Students will……….
1. Identify the methods used by the three basic economic systems in answering the three basic
economic questions in solving the basic economic problem of scarcity.
2. Understand the role of property rights, marginal analysis, and incentives play in motivating people
to pursue their economic interests. (MC=MB)
3. Understand the concept of opportunity costs and be able to explain how the production
possibilities curve is a theoretical tool used to illustrate this concept.
4. Know why specialization based on comparative advantage and trade are both essential in
increasing a nation’s total output.
5. Be able to use a production possibilities frontier to determine specialize in what and trade ratios
between nations.
6. Analyze a production possibilities frontier and apply the concepts opportunity costs and
diminishing marginal returns.
Concepts/Ideas for this unit are found in Modules 1, 3, and 4 of Krugman.
II The Nature of Product Markets (55%-70%)
(My Units 2 & 3)
A. Supply and Demand (15%-20%)
Key Concepts: Competitive Market, Supply and Demand Model,
Demand Curve, Demand Schedule, Quantity Demanded, Law of
Demand, Shifts of the Demand Curve, Changes in Demand,
Determinants of Supply and Demand, Normal Goods, Inferior
Goods, Individual Demand Curve, Quantity Supplied, Supply
Schedule, Supply Curve, Law of Supply, Changes in Supply,
Individual Supply Curve, Shortage, Surplus, Equilibrium, Price
Floors, Price Ceilings, Market Efficiency, Quota, Deadweight
Loss, Wedge, Elasticity of Demand, Elasticity of Supply, Tariffs,
Excise Taxes, Tax Incidence
Students will………………………
1. Know what both demand and supply curves are and understand how these tools are used to
determine equilibrium price.
2. Understand what the determinants of both supply and demand are and know how these factors
can lead to shifts in both curves.
3. Know the difference between movements along the supply and demand curves and changes in
supply and demand.
4. Know how market equilibrium price and quantity are affected when there is a change in supply
or demand. (By either one curve or both curves shifting)
5. Be able to identify areas of shortage and surplus using both supply and demand curves.
6. Understand the meaning of price and quantity controls and know that this is how the
government intervenes in the functioning of the market.
7. Identify the reasons the government intervenes in the market by establishing price and quantity
controls and how this intervention can make the market inefficient.
8. Be able to identify who benefits and who losses from price and quantity controls.
9. Be able to define elasticity and understand how it is a measure of responsiveness to changes in
prices and incomes.
10. Know the importance of price elasticity of demand which measures the responsiveness of
quantity demanded to changes in price.
11. Be able to calculate the price elasticity of demand.
12. Learn how the cross price elasticity of demand measures the responsiveness of demand for one
good to changes in the price of another good.
13. Know the meaning of both consumer and producer surplus and know their relationships to the
demand and the supply curves, respectively.
14. Understand how taxes affect total surplus and can create deadweight loss.
Concepts/Ideas pertaining supply and demand are found in Modules 5, 6, 7, 8, 9, 46, 47, 48, 49, of
Krugman.
B. The Theory of Consumer Choice (5%-10%): Key Concepts: Marginal Utility, Total Utility, Marginal
Utility Curve, Principle of Diminishing Marginal Utility,
Optimal Consumption Bundle, Consumption
Possibilities, Budget Line, Marginal Utility per Dollar,
Optimal Consumption Rule
Students will……………………
1. Know the difference between marginal utility and total utility.
2. Understand how as consumers we apply the concept of marginal analysis to determine how
much additional utility we get for each additional dollar we spend when making economic
choices.
3. Be able to understand how individual market and demand curves can be applied to help us
determine what our optimal consumption bundle is.
4. Understand why the principle of diminishing marginal utility is applies to the consumption of
most goods and services.
Concepts/Ideas pertaining to consumer choice are found in Module 51 of Krugman.
(My Unit 4)
C. Production and Costs (10%-15%)
Key Concepts: Production Function, Fixed Input,
Variable Input, Long Run, Short Run, Total Product
Curve, Marginal Product, Diminishing Returns to an
Input, Fixed Cost, Variable Cost, Total Cost, Average
Total Cost, Average Cost, U-Shaped Average Total Cost
Curve, Average Fixed Cost, Average Variable Cost,
Minimum Cost Output, Long Run Average Total Cost
Curve, Economies of Scale, Increasing Returns to Scale,
Diseconomies of Scale, Decreasing returns to Scale,
Constant Returns to Scale, Sunk Cost, Cost Minimization
Rule.
Students will…………………………………
1. Understand the importance of a firms production function, the relationship between the
quantity of inputs and the quantity of output.
2. Recognize the various types of costs a firm faces including fixed costs, variable costs, and total
costs.
3. Know the reasons why a firm’s costs differ between the short run and the long run.
4. Know why a firm’s costs generate marginal cost curves and average cost curves.
5. Understand the relationships between total, average and fixed costs.
6. Be able to explain why a firm’s costs may differ between the sort run and the long run.
7. Understand the short-run relationship between diminishing returns as it related to MP and MC.
8. How firms organize input combinations to minimize costs.
9. Understand how a firm can enjoy economies of scale.
10. Know who firms determine the optimal input mix.
11. Explain the cost minimizing rule for hiring inputs.
Concepts/Ideas pertaining to production and costs are found in Modules 54, 55, 56, and 72 of Krugman.
(My Units 5-7)
D. Market Structures (25%-35%)
Key Concepts: Market Structure, Explicit Costs, Implicit
Costs, Accounting Profit, Economic Profit, Implicit Cost
of Capital, Principle of Marginal Analysis, Marginal
Revenue, Optimal Output Rule, Marginal Cost Curve,
Marginal Revenue Curve, Break Even Price, Shut-Down
Price, Short-Run Individual Supply Curve, Industry
Supply Curve, Short-Run Industry Supply Curve, Short-
Run Market Equilibrium, Long-Run Market Equilibrium,
Long-Run Industry Supply Curve, Public Ownership,
Price Regulation, Single-Price Monopolist, Price
Discrimination, Perfect Price Discrimination,
Interdependent, Duopoly, Collusion, Cartel,
Noncooperative Behavior, Game Theory, Payoff, Payoff
Matrix, The Prisoners Dilemma, Dominant Strategy,
Nosh Equilibrium, Noncooperative Equilibrium,
Strategic Behavior, Tit for Tat, Tacit Collusion, Antirust
Policy, Price Leadership, Nonprice Competition, Excess
Capacity.
Students will…………………………….
1. Understand the four different types of market structure-perfect competition, monopoly,
oligopoly, and monopolistic competition.
2. The different types of profit, including economic profit, accounting profit, and normal profit.
3. Know how to calculate profit and understand the MR=MC rule.
4. Understand the following as they pertain to Perfect Competition: Long run and short run
equilibria, firm and industry behavior in the long and short run, short run shut down rule,
efficiency as per perfect completion.
5. Understand the following as they pertain to Monopolies: Inefficient price and output compared
to perfect competition, sources of monopoly power, price discrimination, and the distinction
between allocative and productive efficiency.
6. Understand the following as they pertain to Natural Monopolies: Graphic difference with pure
monopoly, regulating
7. Understand the following as it pertains to Oligopoly: Game theory and strategic behavior,
interdependent behavior.
8. Understand the following s they relate to Monopolistic Completion: Product differentiation,
advertising, excess capacity, inefficiency, short run and long run.
Concepts/Ideas pertaining to market structures are found in Modules 57, 52, 53, 58, 59, 60,61, 62, 63,
64, 65, 66, 67, 68, in Krugman.
IV . Factor Markets (10%-18%)
Key Concepts: Physical Capital, Human Capital, Derived
Demand, Factor Distribution of Income, Value of the
Marginal Product, Rental Rate, Marginal Productivity
Theory of Income Distribution, Time Allocation, Leisure,
Individual Labor Supply Curve, Marginal Revenue
Product of Labor, Marginal Factor Cost of Labor,
Compensating Differentials, Equilibrium Value of the
Marginal Product, Unions, Efficiency-Wage Model
Students will…………………………..
1. Understand how resources like land, labor, and capital are traded in the factor markets.
2. Know how the factor markets determine the factor distribution of income.
3. Know how the demand for a factor of production is determined-the labor market and firms
hiring of labor.
4. Understand how the demand for factors leads to the marginal productivity theory of income
distribution.
5. Understand how equilibrium is found in the labor market.
6. Study labor market applications of the marginal productivity theory of income distribution.
7. Understand the market applications of the marginal productivity theory of income distribution
and the sources wage disparities.
Concpets/Ideas that pertain to the factors markets are found in Modules 69, 70, 71, & 73.
(My Unit 8)
V. Role of Government and Market Failure (12%-18%) Key Concepts: Socially Optimal Quantity of
Pollution, Marginal Social Cost of Pollution,
Marginal Social Benefit of Pollution, External
Cost, External Benefit, Externalities, Negaitve
Externalities, Positive Externalities, Coase
Theorem, Transaction Costs, Internalize the
Externalities, Environmental Standards,
Emissions Tax, Pigouvian Taxes, Tradable
Emissions Permits, Marginal Private Benefit,
Marginal Social Benefit of a Good, Marginal
External Benefit, Pigouvian Subsidy, Technology
Spillover, Marginal Private Cost, Marginal Social
Cost of a Good, Marginal External Cost,
Excludable, Rival in Consumption, Private Good,
Nonexcludable, Nonrival in Consumption, FreeRider Problem, Public Good, Common Resource,
Overuse, Artificially Scarce Good, Marginal Cost
Pricing, Average Cost Pricing, Poverty
Threshold, Poverty Rate, Mean Household
Income, Median Household Income, Gini
Coefficient, In-Kind Benefit, Means-Tested,
Negative Income Tax
Students will…………………………………
1.
2.
3.
4.
5.
Understand what externalities are and why they can lead to inefficiency in a market economy.
Know the difference between positive and negative externalities.
MSC=MSB
How income is redistributed through transfer programs.
Understand the importance of the Coase Theorem, which explains how private individuals can
sometimes remedy externalities.
6. Know how external benefits and costs cause inefficiency in the markets for good.
7. Understand why some government programs are efficient and others are not when dealing
with externalities.
8. Know why markets fail to supply efficient quantities of public goods.
9. Why finding the right level of government intervention in the economy is often difficult.
10. How government intervention in the production and consumption of public goods can make
society better off.
11. Identify common resources and why they are overused.
12. Know the three major antitrust laws and how they are used to promote competition.
13. The pros and cons of using marginal cost pricing and average cost pricing to regulate prices in
natural monopolies.
14. Understand what defines poverty, what causes poverty, and the consequences of poverty.
15. How income inequality in America has changed over time.
Concepts/Ideas that pertain to the role of government and market failure can be found in Modules 74,
75, 76, 77, and 78 in Krugman.
Required Readings
The World is Flat (Updated and Expanded) by Thomas L. Friedman, 2006
Economics by Example by David A. Anderson, 2007