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.

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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