1 AP Microeconomics Syllabus Mr. Todd Reynolds AP Econ is a fast paced course that focuses on the decision making of individuals, businesses, and the government. Students will study a variety of economic theories and analyze their practical application in the real world. This course is designed to learn how to think, gain knowledge of a set of new ideas and economic terms along with having some fun along the way. This yearlong course will cover both microeconomics and macroeconomics. Micro focuses on the supply and demand for products, the labor markets, and the role competition plays in a free market system. Macro focuses on the economy as a whole, including economic measures, economic growth, fiscal policy, monetary policy, and international economics. Students are expected to take both AP exams in May. This class will prepare you for college and potentially allow you to earn 6 university credits upon passing both the Microeconomics & Macroeconomics AP exam. Extensive math skills are not required; however, the ability to analyze graphs and charts is essential. Resources McConnell, Campbell, and Stanley Brue. Economics: Principles, Problems, and Policies. 19 th ed. McGraw-Hill/Irwin, Ischool.fcps.net Your course URL: Textbook website - Additional Supplemental Resources Morton, John. Advanced Placement Economics, Microeconomics: Student Activities. 3 rd ed. National Council on Economic Education, Economics USA Video Program. Paul Solman Videos AP Micro & Macro Study Guides - ischool Course Requirements This course can be broken down into five general areas: 1. Quizzes- approx. 15% 2. Problem Sets & Daily Work - 30% 3. Unit Exams approx. 40% 4. Final Exam- approx. 15%
2 Problem Sets Problem Sets are essentially take home tests that require you to explain and apply the concepts discussed in your class and in your book. Each problem set will contain at least two Free Response Questions (FRQs) similar to those given on the AP Exam. Problem sets are expected to be TYPED, double-spaced, 12 font size, with reasonable margins. Quizzes There will be quizzes on most chapters as we complete the work; they are meant to check your understanding of the material presented. Point values will range between 10 and 25 points each. These quizzes will include Multiple Choice, Matching and Fill In. Unit Exams Unit exams include in between 30 to 40 multiples choice questions o There will be 6 unit tests. I feel tests are the best tool of assessment. The tests will contain multiple-choice questions and free-response type questions usually requiring graphs and explanations. After you receive your score, you can recover some points by handing in the assignment called Test Enhancement. The MC questions missed on the test can be reexamined. Students may then complete a sheet, Ih asks: concept, correct answer, and full explanation of correct answer. You can recover 1 point for each questions completed. Approximately 25% of the questions are actual AP questions given on previous exams Each exam will also feature 2 to 3 FRQs that focus on the concepts learned. The FRQ section constitutes one third of your exam score. The Finals You will have a final exam each semester Semester Finals resemble the actual AP Exams. Each exam is divided into two sections: 60 multiple choice questions and 3 FRQs Activities and Simulations This year you will participate in several activities or simulations that will allow you to learn by doing. For example, you will analyze shortages and surpluses in an activity called The Pear Exchange. In this activity you will be divided into buyers and sellers that negotiate prices and respond to changes in the pearl market. Other activities and simulations you will see this semester are: Marshmallow Towers, Widget Production, Name that Product, The Prisoners Dilemma, The Root Beer Game, and The Project. The more you participate the more fun these activities will be.
3 AP Test Information The AP Microeconomics Exam will be given on May 17, The outline from the College Board (they administer the AP tests) is provided in the front cover of the study guide. I will hold review sessions in April 2012 to help you review and I will administer a practice test during the semester. All the students are expected to take the AP test, as this course will prepare you. Exceptions to taking the test may occur because the college you plan to attend does not accept the credit. Check with your schools in the spring before registration. Other Expectations Students must focus on their LEARNING and not just their letter grade. You must COME PREPARED and contribute to class discussions. Every day you will be quizzed to assess your comprehension of the previous nights reading assignment. You may use your notes on daily reading quizzes. All assignments are due on assigned days. NO LATE ASSIGNMENTS WILL BE ACCEPTED. I. Basic Economic Concepts The study of microeconomics requires students to understand that, in any economy, the existence of limited resources along with unlimited wants results in the need to make choices. An effective AP course, therefore, begins by exploring this need by studying the concepts of opportunity costs and trade-offs, which can be illustrated by the production possibilities curve or other analytical examples. The course can then proceed to a consideration of how different types of 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. In this context students need to be able to differentiate between absolute and comparative advantage, to identify comparative advantage from differences in output levels and labor costs, and to determine the basis under which mutually advantageous trade can take place between countries. Specific examples from actual economic situations can be used to illustrate and reinforce the principles involved. II. The Nature and Functions of Product Markets The study of the nature and functions of product markets falls into four broad areas: supply and demand models, consumer choice, production and costs and theory of the firm. A well-planned AP course requires an analysis of the determinants of supply and demand and the ways in which changes in these determinants affect equilibrium price and output. In particular, the course helps students make the important distinction between movements along the curves and shifts in the curves. The course also emphasizes the impact of government policies, such as price floors and ceilings, excise taxes, tariffs and quotas on the free-market price and quantity exchanged. The concepts of consumer surplus and producer surplus should also be introduced. Students are expected to comprehend and apply the concepts
4 of elasticity, including calculating price, cross-price, income elasticity of demand and the price elasticity of supply. The next area covered in the course is the theory of consumer choice. Students should gain an understanding of the basic postulates underlying consumer choice: utility, the law of diminishing marginal utility and utility-maximizing conditions, and their application in consumer decision-making and in explaining the law of demand. By examining the demand side of the product market, students learn how incomes, prices and tastes affect consumer purchases. Here it is important that students understand how to derive an individual s demand curve, how individual and market demand curves are related and how the income and substitution effects explain the shape of the demand curve. The third area covers production and cost analysis both in the short run and in the long run. This section begins with an introduction of the short-run production function, describing the relationship between the quantity of inputs and the quantity of output. Within the context of the production function, students should understand average and marginal products as well as the law of diminishing marginal returns. Students learn the link between productivity and costs and examine the relationships among the short-run costs: total, average and marginal. With an introduction of the concept of cost minimization, this section also includes a discussion of long-run costs and an examination of economies and diseconomies of scale, as well as returns to scale. The fourth area covers the behavior of firms in different types of market structures. This section begins with the definition of profits, making the distinction between accounting and economic profits, and establishing the profit-maximizing rule, using marginal analysis. In covering perfect competition, the course focuses on determining short-run and long-run equilibrium, both for the profit-maximizing individual firm and for the industry, and on the equilibrium relationships among price, marginal and average revenues, marginal and average costs, and profits. Students should understand the adjustment process to long-run equilibrium. In considering the market behavior of a monopolist, students identify and examine the sources of monopoly power and understand the relationship between a monopolist s demand curve and its marginal revenue curve. Students learn how a monopoly s total revenue changes along its demand curve as price varies. Having learned the behavior of monopolies and perfect competition, students should compare a monopolist s price, level of output and profit with those of a firm operating in a perfectly competitive market. By paying particular attention to the concept of allocative efficiency, students learn how and why competitive markets achieve an efficient allocation of resources, whereas monopolists do not. The concept of deadweight loss is a good device to show the efficiency loss due to monopoly. The model of price discrimination provides another dimension of monopoly behavior that students need to learn and understand. In covering oligopoly, the course stresses the interdependency of firms and their tendency to collude or to form a cartel. With a simple payoff matrix, the basic game-theory model should be used to enhance a student s understanding of the interdependent behavior of firms in an oligopolistic market and identification of dominant strategies. Finally, the course considers the market structure of monopolistic competition and highlights the importance of product differentiation and the role of advertising in the behavior of firms. The course then proceeds to examine firm behavior in the short run and in the long run and the existence of excess capacity and its implication for efficiency.
5 III. Factor Markets In this section of the course, students also apply the concepts of supply and demand to markets for factors such as labor, capital and land. Students analyze the concept of derived demand, understand how a factor s marginal product and the marginal revenue product affect the demand for the factor, and consider the role of factor prices in the allocation of scarce resources. 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 determination. Although the course may emphasize perfectly competitive labor markets, the effect of deviations from perfect competition, such as minimum wages, unions, monopolies and product market monopolies, can also be considered. The principles studied in the analysis of the labor market should be applied to the markets for land and capital to explain the determination of economic rent and the price of capital. By studying the determination of factor prices, students gain an understanding of how the market determines the distribution of income and the sources of income inequality in a market economy. IV. Market Failure and the Role of Government It is important for students to understand the arguments for and against government intervention in an otherwise competitive market. Students examine the conditions for economic efficiency, using the marginal social benefit and marginal social cost principle, and the ways in which externalities, public goods and the market distribution of income create market failures even in competitive free-market economies. In addition, students are expected to study the effectiveness of government policies such as subsidies, taxes, quantity controls and public provision of goods and services, which are designed to correct market failures and achieve economic efficiency. It is also important both to emphasize that monopolies can cause market failures when they use their market power to engage in behavior that restrains competition and to examine the government s attempt to solve such problems by using antitrust policy and regulations. Although there is not a generally accepted standard for judging the equity of an economy s income distribution, a well-designed course will incorporate key measures of income distribution (Lorenz curve and Gini coefficient) and examine the impact of government tax policies and transfer programs, both on the distribution of income and on economic efficiency. MICROECONOMICS CONTENT GUIDE & UNITS OF STUDY I. Basic Economic Concepts (8-14%) 2 Weeks (Chapters 1, 2, & 6, McConnell & Brue) A. Founding Principles Scarcity, the economizing problem Tradeoffs and Opportunity Cost Free-market system (Adam Smith s invisible hand) B. Types of Economics Microeconomics vs. macroeconomics Positive economics vs. normative economics C. Production Possibilities Graph Straight vs. bowed PPF Underutilization, full employment, and unattainable Law of increasing opportunity cost 3 shifters of the PPF Consumer goods vs. capital goods
6 D. Circular Flow Model Product market, Factor market, and Public sector E. Specialization and Trade Absolute advantage Comparative advantage Essential Graphs Unit 1 Production Possibility Curve A. Efficiency B. Inefficiency C. Attainable versus unattainable combinations D. Growth Circular Flow Model A. Simple model: household and business, resource and product markets B. Adding government in last unit II. Supply and Demand and Consumer Choice (20-30%) - 4 Weeks (Chapters 3, 4, 20, & 21. McConnell & Brue) A. Demand (graph) Law of demand Market demand curve Determinants of demand Normal vs. inferior goods Substitutes and complements B. Supply (graph) Law of supply Market supply curve Determinants of supply C. Equilibrium and Efficiency (graph) Equilibrium price and quantity Disequilibrium: surplus and shortages (graphing) D. Government Policies (graphs) Price floors and Price ceilings Excise taxes, Subsidies, Tariffs, Quotas E. Elasticity Price, Income, and Cross Price elasticity of demand The total revenue test (graph) F. Consumer Choice Law of diminishing marginal utility, Substitution effect, Income effect Marginal benefit/cost Utility maximizing rule Essential Graphs Unit 2 Demand and Supply Graphs A. Showing equilibrium
7 B. Shifts and effects C. Changes in elasticity of demand and supply D. Effect of floors and ceilings E. Effect of quotas and tariffs F. Effect on tax efficiency efficiency loss G. Consumer and producer surplus III.Costs of Production and Perfect Comp. (15-25%) 3 Weeks (Chapters 22 & 23. McConnell & Brue.) A. Economists vs. Accountants Total revenue Explicit and Implicit costs Economic costs and profits B. Costs of Production (graph) Fixed Costs, Variable costs, and Total costs Per-unit costs (AVC, AFC, ATC) Shifts in MC, ATC. AVC, and AFC Marginal costs and Marginal revenue Sunk costs C. Law of Diminishing Marginal Returns (graph) Stage I: increasing returns Stage II: decreasing returns Stage III: negative returns D. Long-run Production Costs (graph) Economies of scale, Constant Returns to scale, Diseconomies of scale E. Characteristics of Perfect Competition Price takers Demand = MR= Price Graph: Firm vs. industry (market) Short-run (profit or loss) Long-run equilibrium (New firm enter and exit) Normal profit Shutdown decision (P< AVC) Productive efficiency (P = Min ATC) Allocative efficiency (P = MC) Essential Graphs Unit 3 A. Short-run costs B. Long-run costs C. Perfectly competitive markets 1. Short-run and long-run profits and losses 2. Side-by-side graphs of the market and the firm 3. Effects of shifts in market 4. Allocative and productive efficiency IV. Imperfect Competition (15-25%) 3 Weeks
8 (Chapters 24 & 25 McConnell & Brue) A. 1. Characteristics of Monopolies Barriers to entry MR below demand (graphs) Profit-maximizing price and quantity Natural monopoly B. Effects on overall economy Compared to competitive industry Dead-weight loss X-efficiency C. Price discrimination (graph) Purpose and results Graph (MR=D) D. Regulation Unregulated price, Fair return price, and Socially optimal price Taxes and subsidies E. Characteristics of Monopolistic Competition Long-run equilibrium (graph) Excess capacity Non-price competition Product differentiation F. Characteristics of Oligopolies Kinked demand curve-competitive pricing Game theory (chart) price leadership Collusion and cartels Essential Graphs Unit 4 Imperfectly competitive markets 1. Single price unregulated monopoly a) Deadweight loss 2. Natural regulated monopoly a) Socially optimum output b) Fair return price 3. Perfectly discriminating monopoly 4. Monopolistically competitive markets a) Short-run and long-run profits and losses b) Excess capacity 5. Oligopoly a) Strategic behavior b) Dominant strategy c) Nash equilibrium V. Factor Markets (10-18%) 3 Weeks (Chapters 27, 28, 29, & 35. McConnell & Brue)
9 A. Demand for labor Derived demand Marginal revenue product Marginal resource cost B. Perfectly competitive labor market (graph) Wage makers Perfectly elastic supply of labor C. Monopsony (graph) Wages and quantity compared to perfectly competitive labor market D. Labor Unions Goals and methods E. Effects of Minimum Wage F. Wage differentials Investment in human capital vs. physical capital Essential Graphs Unit 5 Factor or Resource Market A. Perfectly competitive labor market 1. Side-by-side graphs of the market and the firm 2. Effects of shifts in the market supply or demand for resources B. Imperfectly competitive labor market 1. Shift of MRP and/or MRC VI. Market Failure and the Role of Government (12-18%) 3 Weeks (Chapters 30, 31, & 34. McConnell & Brue) A. Public goods Demand for public goods Supply of public goods Free-rider problem Non-excludability and Non-rivalry B. Positive externalities/spillover benefits (graph) Marginal social benefits vs. private benefits Underallocation Government remedy C. Negative externalities/spillover costs (graph) Marginal social cost vs. private cost Overallocation Government remedy D. Income distribution Lorenz curve (graph) Tax incidences Essential Graphs Unit 6 Externalities
10 A. Negative externality 1. Socially optimum point versus private-market equilibrium 2. Effect of government corrective policies B. Positive externality 1. Socially optimum point versus private-market equilibrium 2. Effect of government corrective policies Key skills and concepts: Microeconomics: 1. Define the science of economics 2. Distinguish between opportunity cost, scarcity, and trade-offs. 3. Distinguish between macroeconomics and microeconomics 4. Make a distinction between positive economics and normative economics 5. List the three basic economic questions 6. Define comparative advantage and specialization and benefits of exchange 7. Use a production possibilities curve to demonstrate opportunity cost and growth 8. List the determinants of demand and supply curves 9. Recognize which factors will cause demand curves or supply curves to shift to shift 10. Distinguish between changes in quantity demanded versus a change in demand 11. Distinguish between changes in quantity supplied versus a change in supply 12. Determine equilibrium using a demand/supply graph and show the effects on price and quantity when equilibrium changes 13. Distinguish between a normal and inferior good 14. Distinguish between a substitute and complementary good 15. Predict the effect of an effective price ceiling or floor in a market 16. Measure elasticity using percentage changes in quantity caused by price changes 17. Use demand/supply graphs to show the effect of differences in elasticity 18. Define the law of diminishing marginal utility 19. Use the income effect and the substitution effect to explain the down-sloping demand curve 20. Apply the utility-maximizing rule 21. Given a demand/supply graph, identify/calculate the area of consumer surplus/producer surplus 22. Distinguish economic profit from accounting profit. 23. Use a circular flow diagram to model a market
11 24. Make a distinction between the short run from the long run. 25. Define the law of diminishing marginal returns 26. Identify per unit costs when given total costs and output; identify total costs when given per unit costs output 27. Identify the key characteristics of the different types of market structure 28. Use the profit-maximizing rule (MR=MC) to determine output price for firms in the different types of market structure 29. Determine short and long run profit in the different types of market structure 30. In words and using graphical analysis, show the short and long position of the purely competitive firm 31. In words and using graphical analysis, show the profit scenario of a single price monopolist and a perfectly discriminating monopolist 32. Identify the government policies employed when a firm exercises monopoly power or is a natural monopoly 33. In words and using graphical analysis, show the position of the monopolistically competitive firm in the short and long run 34. Predict the behavior of oligopolistic firms using game theory and profit matrixes 35. Define derived demand 36. Given a graph or a table, determine the market wage and the quantity of labor a profitmaximizing firm would hire in a perfectly competitive labor market 37. Given a graph or a table, determine the market wage and the quantity of labor a profitmaximizing firm would hire in a imperfectly competitive labor market 38. Given a graph, identify/calculate the area of consumer surplus/producer surplus when government imposes a tariff 39. Given a graph, identify the incidence of a tax on buyer and seller and the deadweight loss 40. List the economic functions of government 41. Define a public good 42. Discuss the free rider problem 43. List the effect of income and payroll taxes on the economy 44. Identify the two principles used to assess fairness of a tax 45. Explain negative and positive externalities and give examples of each 46. Identify the possible remedies for market failures that might be employed to achieve an optimal allocation of resources