1 Social Studies AP Economics STANDARD SKILLS and CONCEPTS VOCABULARY Standard 1: Scarcity and Economic Reasoning Students will understand that productive resources are limited; therefore, people, institutions and governments cannot have all the goods and services they want. As a result, people, institutions and governments must choose some things and give up others. Standard 2: Supply and Demand Students will understand the role that supply and demand, prices, and profits play in determining production and distribution in a market economy. E.1.1 E.1.2 E.1.3 E.1.4 E.1.5 E.1.6 E.1.7 E.1.8 E.1.9 Define each of the productive resources (natural, human, capital) and explain why they are necessary for the production of goods and services. (Geography) Explain how consumers and producers confront the condition of scarcity by making choices which involve opportunity costs and tradeoffs. Explain the important role of the entrepreneur in taking the risk to combine productive resources to produce goods and services. Describe how people respond predictably to positive and negative incentives. Explain that voluntary exchange occurs when all participating parties expect to gain. Compare and contrast how the various economic systems (traditional, market, command, mixed) answer the questions: What to produce? How to produce it? For whom to produce?. Describe how clearly defined and enforced property rights are essential to a market economy. (Government) Use a production possibilities curve to explain the concepts of choice, scarcity, opportunity cost, tradeoffs, unemployment, productivity and growth. Diagram, explain, and evaluate a Circular Flow Model of a market economy, showing households and businesses as decision makers, resource and money flows, and the three basic markets product, productive resources and financial markets. APECON 1.L1 Evaluate how limited oproductive resources and unlimited wants result in scarcity, opportuinity costs, and trade-offs for individuals, businesses, and governments. APECON 1.L2 Compare and contrast the marginal benefits and the marginal costs of an action with rational decision making. APECON 1.L3 Prove how specialization and voluntary exchange between buyers and sellers increase the satisfaction of both parties. APECON 1.L4 Appraise choices using marginal analysis. E.2.1 Define supply and demand Supply E.2.2 Identify factors that cause changes in market supply and demand. E.2.3 Describe the role of buyers and sellers in determining the equilibrium price. E.2.4 Describe how prices send signals to buyers and sellers. E.2.5 Recognize that consumers ultimately determine what is produced in a market economy (consumer sovereignty). E.2.6 Demonstrate how supply and demand determine equilibrium price and quantity in the product, resource and financial markets. E.2.7 Demonstrate how changes in supply and demand influence equilibrium price and quantity in the product, resource, and financial markets. E.2.8 Describe how the earnings of workers are determined by the market value of the product produced and workers productivity. E.2.9 Demonstrate how government wage and price controls, such as rent controls and minimum wage laws, create shortages and surpluses. (Government) E.2.10 Use concepts of price elasticity of demand and supply to explain and predict changes in quantity as price changes and assess cross-elasticities of demand. E.2.11 Illustrate how investment in factories; machinery; new technology; and the health, education and training of people increases productivity and raises future standards of living. (Individuals, Society and Culture) Natural Resource Human Resource Capital/Scarcity Positive incentive Negative incentive Voluntary exchange Traditional economics Market economy Command economy Mixed economy Opportunity cost Trade off Demand Equilibrium price Consumer sovereignty Elasticity Shortage Surplus
2 Standard 3: Market Structures Students will understand the organization and role of business firms and analyze the various types of market structures in the United States economy. Standard 4 : The Role of Government Students will understand that typical microeconomic roles of government in a market or mixed economy are the provision of public goods and services, redistribution of income, protection of APECON2.L1 Evaluate consumer surplus, producer surplus and market efficiency. APECON 2.L2 Appraise tax incidence and deadweight loss. APECON 2.L3 Apply the utility maximization rule to consumer choice. APECON 2.L4 Differentiate between individual and market demand curves. APECON 2.L5 Select situations which illustrate the income and substitution effects. E.3.1 Compare and contrast the following forms of business organization: sole proprietorship, partnership and corporation. E.3.4 Identify the basic characteristics of the four market structures: monopoly, oligopoly, monopolistic competition and pure competition. E.3.5 Explain how competition among many sellers lowers costs and prices. E.3.6 Demonstrate how firms determine price and output through marginal analysis. E.3.7 Explain ways that firms engage in price and non-price competition. E.3.9 Explain the function of profit in a market economy as an incentive for entrepreneurs to accept the risks of business failure. E.3.10 Describe the benefits of natural monopolies (economies of scale) and the purposes of government regulation of these monopolies, such as utilities. (Government) E.3.11 Explain how interdependence, collusion, and cartels affect product price and output. APECON 3.L1 Describe and differentiate between production functions of short run and long run. APECON 3.L2 Describe and analyze marginal product and diminishing returns. APECON 3.L3 Identify short run costs and long-run costs. APECON 3.L4 Identify and analyze the cost minimizing input combination. APECON 3.L5 Compute, differentiate and analyze the difference between accounting versus economic profits. APECON 3.L6 Describe and explain normal profit. APECON 3.L7 Define, explain and apply the profit maximization rule (MR = MC). APECON 3.L8 Illustrate and evaluate the shut-down decision in a perfectly competitive market. APECON 3.L9 Define, explain and evaluate efficiency in a perfectly competitive market. APECON 3.L10 Explain the sources of market power in a monopoly market. APECON 3.L11 Illustrate and evaluate profit maximization in a monopoly. APECON 3.L12 Explain the inefficiency of a monopoly. APECON 3.L13 Define, explain and evaluate price discrimination in a monopoly market. APECON 3.L14 Define, explain and evaluate a natural monopoly. APECON 3.L15 Evaluate an oligopoly market through game theory. APECON 3.l16 Explain the role of product differentiation and role of advertising. APECON 3.L17 Evaluate profit maximization in a monopolistically competitive market. APECON 3.L18 Evaluate short-run and long-run equilibrium in pure competition, monopoly, oligopoly and monopolistic competition. APECON 3.L19 Define and explain excess capacity and its role in inefficency. Sole proprietorship Partnership Corporation Monopoly Oligopoly Monopolistic competition Pure competition Marginal analysis Non-price competition Anti-trust legislation Profit Economies of scale cartels short run long run Marginal product Diminishing returns Normal profit Excess capacity E.4.1 Explain the basic functions of government in a market economy. (Government) Public Goods E.4.2 Explain and evaluate how markets produce too few public goods and how the Spillovers government determines the amount to produce through looking at benefits and costs. Progressive tax E.4.3 Describe, graph and evaluate how the government taxing harmful spillovers* and Proportional tax subsidizing helpful spillovers helps to resolve the inefficiency they cause. Regressive tax E.4.7 Define progressive, proportional and regressive taxation. (Government) Externality E.4.8 Determine whether different types of taxes (including income, sales and social Lorenz Curve
3 property rights, and resolution of market failures. Standard 8: Trade Students will understand why individuals, businesses and governments trade goods and services and how trade affects the economies of the world. security) are progressive, proportional or regressive. (Government) E.4.9 Describe how costs of government policies may exceed benefits, because social or political goals other than economic efficiency are being pursued. (Government) APECON 4.L1 Evaluate the marginal social benefit and marginal social cost of externalities. APECON 4.L2 Identify sources of income inequality. APECON 4.L3 Evaluate income distribution with the Lorenz Curve and Gini Ratio. * spillover: the impact of an activity (positive or negative) on the well-being of a third party E.8.2 Define and distinguish between absolute and comparative advantage. E.8.7 Explain how most trade occurs because of a comparative advantage in the production of a particular good or service. APECON 4.L4 Evaluate trade choices by application of comparative advantage. Gini Ratio Absolute advantage Comparative advantage AP MICROECONOMICS The concentration of study in AP Microeconomics will be how individuals, firms, and organizational structures make economic decisions. Demand and supply analysis is developed to demonstrate how market prices are determined, how those prices determine an economy s allocation of goods and services, how factors of production are allocated in the production process, and how goods and services are distributed throughout the economy. We evaluate the strengths and weaknesses of economic decision makers by employing concepts of efficiency and equity. We also analyze and evaluate the effects of government intervention on a free market economy. Textbook: Economics, 3rd Edition, Krugman and Wells. Additional sources: 5 Steps to a 5, AP Microeconomics/Macroeconomics, McGraw-Hill, Eric Dodge, Supplemental reading: THE FATAL EQUILIBRIUM, 1985, Marshall Jevons. UNITS TIMETABLE Basic Economic Concepts 2 weeks Nature and Function of Product Markets 4 ½ weeks
4 Firm Production, Costs, and Revenues 7 ½ weeks Factor Markets 1 week Efficiency, Income Equity, and the Role of Government 1 week FATAL EQUILIBRIUM & Power Point Project 1 week Final Review 1 week Microeconomics Unit One: Basic Economic Concepts I. Basic Economic Concepts [2 weeks] A. Scarcity, choice, and opportunity cost B. Production possibilities curve C. Comparative advantage, specialization, and trade D. Economic systems E. Property rights and the role of incentives F. Marginal analysis List of Key concepts and graphs
5 Concepts: Introduction to the language of economics, micro vs. macro, positive vs. normative economics, economic decision making, pitfalls of decision making, scarcity, opportunity costs, production possibilities, absolute advantage, comparative advantage, specialization, terms of trade, market, command, and mixed economic systems, questions each economic system must answer, property rights and the role of incentives, marginal decision making, economic efficiency using marginal analysis. Graphs: Production possibilities curve (frontier) Circular flow of economic activity List of Key words or terms Key terms: economics, factors of production--inputs, capital, microeconomics, macroeconomics, positive economics, normative economics, ceteris paribus, fallacy of composition, scarcity, opportunity cost, model, production possibilities, constant costs, law of increasing opportunity cost, absolute advantage, comparative advantage, specialization, terms of trade, productive efficiency, allocative efficiency, capitalism, socialism, private property, incentives, marginal benefit, marginal cost. Web references Activities Activities 1-8, John Morton, Advanced Placement Economics.
6 Microeconomics Unit Two: The Nature and Functions of Product Markets II. The Nature and Functions of Product Markets [4 ½ weeks] A. Supply and Demand 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 List of Key Concepts and Graphs Concepts: demand schedule, determinants of demand, individual and market demand curves, supply schedule, determinants of supply, market equilibrium, shifts in supply and demand with effects on equilibrium price and quantity, shortages, surpluses, ceilings and floors, price elasticity, characteristics of products with elastic/inelastic demand, total revenue formula, price elasticity using midpoint formula, income and cross-price elasticities, elasticity of supply, consumer surplus, producer surplus, market efficiency, taxation and who bears the burden as determined by elasticities of demand and supply. Graphs: demand and supply curves showing equilibrium, shifts of demand/supply Demand and supply curves showing ceilings and floors Demand and supply curves showing consumer surplus/producer surplus List of Key Words or Terms Demand, law of demand, quantity demanded, market demand, substitutes, complements, normal goods, inferior goods, supply, law of supply, quantity supplied, market equilibrium, equilibrium price, equilibrium quantity, shortage, surplus, price ceiling, price floor, elastic, inelastic, unit elastic, perfectly elastic, perfectly inelastic, total revenue, income elasticity of demand, cross-price elasticity of demand, elasticity of supply, consumer surplus, producer surplus, total economic surplus, market efficiency, taxation, tax incidence, deadweight loss.
7 Web resources ttp:// Videos Economics U$A Video Demand and Supply: What sets the price Elasticity, Insight Media Adam Smith and the Wealth of Nations, Liberty Fund Simulations A Silver Market, Exemplary Lessons for High School Economics, National Council of Economic Education Activities Advanced Placement Economics, Third Edition 2003 (National Council for Economic Education), Activities 9-23 B. Theory of consumer choice 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 List of key concepts and graphs Concepts: The law of diminishing marginal utility, marginal utility vs. total utility, equalizing marginal utility per dollar for two or more products, the derivation of the demand curve, horizontal summation of individual demand curves to achieve market demand curve, income effect and the demand curve, the substitution effect and the demand curve. Graphs: Demand curve
8 List of key words and terms Marginal utility, total utility, MUa/Pa=MUb/Pb, individual demand curve, market demand curve, horizontal summation, substitution effect, income effect Web Resources The Nature and Function of Product Markets continued C. Production and costs 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 List of key concepts and graphs Concepts: Long-run and short run characteristics, law of diminishing marginal returns, relationship between marginal and average product, costs of production in the short run, relationship between short run production and costs, appearance of the various cost curves, cost minimizing input combination Graphs: Marginal product identify ranges of increasing, decreasing, and negative returns Marginal and average product curves on the same graph
9 Total fixed cost, total variable cost, and total cost on the same graph Average fixed cost, average variable cost, average total cost, and marginal cost on the Same graph Long-run average total cost curve with three ranges List of key words and terms Total product, marginal product, average product, short run, long run, fixed costs, variable costs, total costs, marginal costs, average fixed costs (AFC), average variable costs (AVC), average total costs (ATC), economies of scale, constant returns to scale, diseconomies of scale, minimum efficient scale Web resources Simulations Production activity using fixed and variable units to produce a product Blurb Game Activities Advanced Placement Economics, Third Edition, 2003, (National Council on Economic Education Activities David Anderson and James Chasey, Favorite Ways to Learn Economics, Chapter Five Activities Microeconomics Unit Three: Firm Production, Costs, and Revenues III. Firm Behavior and Market Structure [7 ½ weeks] A. Profit: 1. Accounting vs. economic profits 2. Normal profit 3. Profit maximization: MR=MC rule B. Perfect competition a. Profit maximization b. Short-run supply and shutdown decision
10 c. Firm and market behaviors in short-run and long-run equilibria d. Efficiency and perfect competition C. Monopoly e. Sources of market power f. Profit maximization g. Inefficiency of monopoly h. Price discrimination D. Oligopoly i. Interdependence, collusion, and cartels j. Game theory and strategic behavior E. Monopolistic competition k. Product differentiation and role of advertising l. Profit maximization m. Short-run and long-run equilibrium n. Excess capacity and inefficiency List of key concepts and graphs Concepts: economic costs, determination of total revenue, types of profit, profit maximization rule Perfect competition: characteristics of perfect competition, industry vs. firm s demand curve, profit maximization (loss minimization) in the short run, short-run supply and shutdown decision, changes in supply/demand and the effects in short and long run, long run supply curve, efficiency. Monopoly: characteristics of monopoly, appearance of the demand curve and marginal revenue curve, profit maximizing output and price, price discrimination, natural monopolies and price strategies, anti-trust legislation. Monopolistic competition: characteristics of monopolistic competition, profit maximization, short-run vs. long run output, price, and profit Oligopoly: characteristics of oligopoly, game theory model, strategic decision-making
11 Graphs Perfectly competitive side-by-side industry and firm graphs Perfectly competitive firm with short-run profits Perfectly competitive firm with short-run losses Perfectly competitive side-by-side industry and firm graphs in long-run equilibrium Monopoly firm graph with profit maximizing price and quantity Monopoly firm graph with socially optimal or fair return price Monopolistically competitive firm in the short-run Monopolistically competitive firm in the long-run List of key words and terms Implicit costs, explicit costs, economic costs, economic profit, normal profit Perfect competition: price taker, total revenue, average revenue, marginal revenue, profit maximization at MR=MC, shutdown, short-run supply, long-run supply, decreasing cost industries, constant cost industries, increasing cost industries, allocative efficiency, productive efficiency. Monopoly: price searcher, barriers to entry, patent, rent-seeking behavior, price discrimination, natural monopoly, socially optimal price, fair return price Monopolistic competition: product differentiation, excess capacity Oligopoly: cartels, collusion, Herfindahl Index, concentration ratio, prisoner s dilemma, price leadership model, game theory Web resources Videos Competitive Markets, Published 2000.
12 Economics U$A, Monopoly, Oligopolies Imperfect competition, 2000 Monopoly, 2000 Microeconomics Unit Three: Factor Markets III. Factor Markets (1 week) A. Derived factor demand B. Marginal revenue product C. Labor market and firms hiring of labor D. Market distribution of income List of key concepts and graphs Concepts: Circular flow of economic activity with emphasis on the factor market, derived demand, how marginal revenue product is determined, shifts in MRP, cost minimization when using more than one resource, profit maximization when using more than one resource, supply of resources, changes in the supply of labor, profit maximization in the perfectly competitive labor market, equilibrium in a monopsony, unions and determination of wages, determination of other factor prices. Graphs: Circular flow of economic activity Marginal revenue product (Demand) curve Market s marginal revenue product and marginal resource cost (supply) curves Firm s marginal revenue product and marginal resource cost (supply) curves Monopsony List of key words or terms Factor market, product market, input, resource, derived demand, marginal (physical) product of labor (MPL), productivity, value of the marginal product, marginal revenue product, marginal resource cost, wage taker, substitution effect, output effect,
13 least cost combination of resources, profit maximizing combination of resources, monopsony, unions, nominal wage, real wage, economic rent. Web Resources ttp://
14 Microeconomics Unit Four: Market Failure and the Role of Government IV. Market Failure and the Role of Government (1 week) 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 List of Key Concepts and Graphs Concepts: Market failure when marginal social benefit does not equal marginal social cost, recognizing socially optimal price/quantity, positive externalities and remedies to equate MSB and MSC, negative externalities and remedies to equate MSB and MSC, characteristics of public and private goods, various types of taxes, anti-trust policies, promoting competition through regulation, income distribution, issues of income inequality. Graphs: market supply and demand curves with optimal price/quantity Market supply and demand curves with positive externality Market supply and demand curves with negative externality Lorenz curve List of Key Words or Terms
15 Marginal cost-marginal benefit rule, positive externality, spillover benefit, negative externality, spillover cost, Coase theorem, tragedy of the commons, tax, subsidy, rivalry, private goods, public goods, common resources, free rider, progressive tax, proportional tax, regressive tax, average tax rate, marginal tax rate, antitrust legislation and mergers, income distribution, Lorenz curve, and the Gini ratio. Web Resources ttp:// Activities Advanced Placement Economics, Third Edition, 2003, National Council on Economic Education), Activities David Anderson and James Chasey, Favorite Ways to Learn Economics, Chapter Four Video Market Failure: Externalities, Films for the Humanities & Sciences, Microeconomics Unit 5: Project and Review Read: A FATAL EQUILIBRIUM Discussion and paper Power Point Project Review for Final