AP Microeconomics

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Course Syllabus: AP Microeconomics Syllabus

The AP Microeconomics Exam

KHAN Academy AP Microeconomics

Jason Welker Economic Classroom

Econowaugh AP

                                                                                     

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    Section 1.0 The foundations of economics & 3.1 International trade: Free trade

Section 1.0 Vocabulary 

Read chapters 2 & Pages 764-771 in the McConnell Brue Textbook 

Essential Question(s):

1.    Explain that economics is a social science.

2.    Outline the social scientific method.

3.    Explain the process of model building in economics.

4.    Explain that economists must use the ceteris paribus assumption when developing economic models.

5.     Distinguish between positive and normative economics.

6.    Distinguish between economic goods and free goods

7.    Examine the assumption of rational economic decision-making.

8.    Explain that scarcity exists because factors of production are finite and wants are infinite.

9.    Explain that economics studies the ways in which resources are allocated to meet needs and wants.

10.  Explain that the three basic economic questions that must be answered by any economic system are: “What to produce?”, “How to produce?” and “For whom to produce?”

11.  Explain that as a result of scarcity, choices have to be made.

12.  Explain that when an economic choice is made, an alternative is always foregone.

13.  Describe the factors of production

14.  Explain that a production possibilities curve (production possibilities frontier) model may be used to show the concepts of scarcity, choice, opportunity cost and a situation of unemployed resources and inefficiency

15.  Distinguish between different rationing systems

16.  Compare and contrast the advantages and disadvantages of planned and free market economies 

17.  Define and give an example of a transition economy

18.  Explain that the economics course will focus on several themes, which include:

a.    the extent to which governments should intervene in the allocation of resources

b.    the threat to sustainability as a result of the current patterns of resource allocation

c.     the extent to which the goal of economic efficiency may conflict with the goal of equity

d.    the distinction between economic growth and economic development.

3.1 International trade:  Free trade

19.  Explain that gains from trade include lower prices for consumers, greater choice for consumers, and the ability of producers to benefit from economies of scale, the ability to acquire needed resources, a more efficient allocation of resources, increased competition, and a source of foreign exchange.

20.  Explain the theory of absolute advantage.

21.  Explain, using a diagram, the gains from trade arising from a country’s absolute advantage in the production of a good.

22.  Explain the theory of comparative advantage  

23.  Describe the sources of comparative advantage, including the differences between countries in factor endowments and the levels of technology.

24.  Draw a diagram to show comparative advantage.

25.  Calculate opportunity costs from a set of data in order to identify comparative advantage.

26.  Draw a diagram to illustrate comparative advantage from a set of data.

                                                                                                                 

Section 1.2 Elasticity

Section 1.2 Vocabulary

Read Chapter 20 in the McConnell Brue Textbook

Price elasticity of demand (PED) and its determinants

1. Explain the concept of price elasticity of demand, understanding that it involves responsiveness of quantity demanded to a change in price, along a given demand curve.
2. Calculate PED using the following equation.

PED =percentage change in quantity demanded /percentage change in price

3. State that the PED value is treated as if it were positive although its mathematical value is usually negative.
4. Explain, using diagrams and PED values, the concepts of price elastic demand, price inelastic demand, unit elastic demand, perfectly elastic demand and perfectly inelastic demand.
5. Explain the determinants of PED, including the number and closeness of substitutes, the degree of necessity, time and the proportion of income spent on the good.
6. Calculate PED between two designated points on a demand curve using the PED equation above.
7. Explain why PED varies along a straight line demand curve and is not represented by the slope of the demand curve. 

Applications of price elasticity of demand

8. Examine the role of PED for firms in making decisions regarding price changes and their effect on total revenue.
9. Explain why the PED for many primary commodities is relatively low and the PED for manufactured products is relatively high.
10. Examine the significance of PED for government in relation to indirect taxes. 

Price elasticity of supply  (PES) and its determinants

11. Explain the concept of price elasticity of supply, understanding that it involves responsiveness of quantity supplied to a change in price along a given supply curve.
12. Calculate PES using the following equation.

PES=  percentage change in quantity supplied/ percentage change in price

13. Explain, using diagrams and PES values, the concepts of elastic supply, inelastic supply, unit elastic supply, perfectly elastic supply and perfectly inelastic supply.
14. Explain the determinants of PES, including time, mobility of factors of production, unused capacity and ability to store stocks.

Applications of price elasticity of supply

15. Explain why the PES for primary commodities is relatively low and the PES for manufactured products is relatively high.

Income elasticity of demand (YED) and its determinants

16. Explain the concept of income elasticity of demand, understanding that it involves responsiveness of demand (and hence a shifting demand curve) to a change in income.
17. Calculate YED using the following equation

YED= percentage change in quantity demanded / percentage change in income

18. Show that normal goods have a positive value of YED and inferior goods have a negative value of YED.
19. Distinguish, with reference to YED, between necessity (income inelastic) goods and luxury (income elastic) goods.

Applications of income elasticity of demand

20. Examine the implications for producers and for the economy of a relatively low YED for primary products, a relatively higher YED for manufactured products and an even higher YED for services.

Cross price elasticity of demand (XED) and its determinants

21. Explain the concept of cross price elasticity of demand, understanding that it involves responsiveness of demand for one good (and hence a shifting demand curve) to a change in the price of another good.
22. Calculate XED using the following equation.

XED = percentage change in quantity demanded of good x/ percentage change in   price of good y

23. Show that substitute goods have a positive value of XED and complementary goods have a negative value of XED.
24. Explain that the (absolute) value of XED depends on the closeness of the relationship between two goods.

Applications of cross price elasticity of demand

25. Examine the implications of XED for businesses if prices of substitutes or complements change.

AP Microeconomics: II. B. Theory of Consumer Choice

        26.  Define total and marginal utility

        27.  Explain The law of diminishing marginal utility

        28.  Describe how the consumer decides what to purchase using the utility maximization rule.

        29.   Explain the marginal utility-price ratios

        30.  Explain the DIAMOND-WATER PARADOX

                                                                                     

Section 1.3 Government Intervention

Section 1.3 Vocabulary

Read Chapter 31 in the McConnell Brue Textbook

Section 1.3 Government intervention Essential Questions 

Specific (fixed amount) taxes and ad valorem (percentage) taxes and their impact on markets

1. Explain why governments impose indirect (excise) taxes 

2. Distinguish between specific and ad valorem taxes.

3. Draw diagrams to show specific and ad valorem taxes, and analyses their impacts on market outcomes.

4. Discuss the consequences of imposing an indirect tax on the stakeholders in a market, including consumers, producers and the government.

Tax incidence and price elasticity of demand and supply

5. Explain, using diagrams, how the incidence of indirect taxes on consumers and firms differs, depending on the price elasticity of demand and on the price elasticity of supply.

6. Plot demand and supply curves for a product from linear functions and then illustrate and/or calculate the effects of the imposition of a specific tax on the market (on price, quantity, consumer expenditure, producer revenue, government revenue, consumer surplus and producer surplus). 

Subsidies

Impact on markets

7. Explain why governments provide subsidies, and describe examples of subsidies.

8. Draw a diagram to show a subsidy, and analyze the impacts of a subsidy on market outcomes.

9. Discuss the consequences of providing a subsidy on the stakeholders in a market, including consumers, producers and the government.

10. Plot demand and supply curves for a product from linear functions and then illustrate and/or calculate the effects of the provision of a subsidy on the market (on price, quantity, consumer expenditure,  producer revenue, government expenditure, consumer surplus and producer surplus).

3.1 International trade (Restrictions on free trade: Trade protection)

11.  Explain, using a tariff diagram, the effects of imposing a tariff on imported goods on different stakeholders, including domestic producers, foreign producers, consumers and the government.

12. Calculate from diagrams the effects of imposing a tariff on imported goods on different stakeholders, including domestic producers, foreign producers, consumers and the government. 

Price controls

Price ceiling (Maximum prices): rational, consequences and example

13.  Explain why governments impose price ceilings, and describe examples of price ceilings, including food price controls and rent controls.

14.  Draw a diagram to show a price ceiling, and analyze the impacts of a price ceiling on market outcomes.

15.  Examine the possible consequences of a price ceiling, including shortages, inefficient resource allocation, welfare impacts, underground parallel markets and non-price rationing mechanisms.

16.  Discuss the consequences of imposing a price ceiling on the stakeholders in a market, including consumers, producers and the government.

17.  Calculate possible effects from the price ceiling diagram, including the resulting shortage and the change in consumer expenditure (which is equal to the change in firm revenue).

Price floors (minimum prices): rationale, consequences and examples

18.  Explain why governments impose price floors, and describe examples of price floors, including price support for agricultural products and minimum wages.

19.  Draw a diagram of a price floor, and analyze the impacts of a price floor on market outcomes.

20.  Examine the possible consequences of a price floor, including surpluses and government measures to dispose of the surpluses, inefficient resource allocation and welfare impacts.

21.  Discuss the consequences of imposing a price floor on the stakeholders in a market, including consumers, producers and the government.

22.  Calculate possible effects from the price floor diagram, including the resulting surplus, the change in consumer expenditure, the change in producer revenue, and government expenditure to purchase the surplus.
                                                                                     

Section 1.4  Market failures &  2.3 Macroeconomic Objectives: Equity in the distribution of income

                                                                                             

Section 1.1   Competitive markets: Demand and Supply

Section 1.1 Vocabulary

Read Chapter 3 in the McConnell Brue Textbook 

Essential Questions:

Markets

Outline the meaning of the term market.

The law of demand

1. Explain the negative causal relationship between price and quantity demanded. 
2. Describe the relationship between an individual consumer’s demand and market demand.
3. Explain how factors including changes in income (in the cases of normal and inferior goods), preferences, prices of related goods (in the cases of substitutes and complements) and demographic changes may change demand.
4. Distinguish between movements along the demand curve and shifts of the demand curve.
5. Draw diagrams to show the difference between movements along the demand curve and shifts of the demand curve.
6. Explain a demand function (equation) of the form Qd = a – bP.
7. Plot a demand curve from a linear function (eg. Qd = 60 – 5P).
8. Identify the slope of the demand curve as the slope of the demand function Qd = a – bP, that is –b (the coefficient of P).
9. Outline why, if the “a” term changes, there will be a shift of the demand curve.
10. Outline how a change in “b” affects the steepness of the demand curve.

The law of supply

1. Explain the positive causal relationship between price and quantity supplied. 
2. Describe the relationship between an individual producer’s supply and market supply.
3. Explain that a supply curve represents the relationship between the price and the quantity supplied of a product, ceteris paribus.
4. Draw a supply curve.
5. Explain how factors including changes in costs of factors of production (land, labor, capital and entrepreneurship), technology, prices of related goods (joint/competitive supply), expectations, indirect taxes and subsidies and the number of firms in the market can change supply.
6. Distinguish between movements along the supply curve and shifts of the supply curve.
7. Draw diagrams to show the difference between movements along the supply curve and shifts of the supply curve.
8. Explain a supply function (equation) of the form Qs = c + dP.
9. Plot a supply curve from a linear function (eg, Qs = –30 + 20 P).
10. Identify the slope of the supply curve as the slope of the supply function Qs = c + dP, that is d (the coefficient  of P).
11. Outline why, if the “c” term changes, there will be a shift of the supply curve.
12. Outline how a change in “d” affects the steepness of the supply curve

Market equilibrium

1. Explain, using diagrams, how demand and supply interact to produce market equilibrium.
2. Analyze, using diagrams and with reference to excess demand or excess supply, how changes in the determinants of demand and/or supply result in a new market equilibrium.
3. Calculate the equilibrium price and equilibrium quantity from linear demand and supply functions.
4. Plot demand and supply curves from linear functions, and identify the equilibrium price and equilibrium quantity.
5. Calculate the quantity of excess demand or excess supply in the above diagrams.

The role of the price mechanism

1. Explain why scarcity necessitates choices that answer the “What to produce?” question. 
2. Explain why choice results in an opportunity cost.
3. Explain, using diagrams, that price has a signaling function and an incentive function, which result in a reallocation of resources when prices change as a result of a change in demand or supply conditions.

Market efficiency

1. Explain the concept of consumer surplus.
2. Identify consumer surplus on a demand and supply diagram.
3. Explain the concept of producer surplus.
4. Identify producer surplus on a demand and supply diagram.
5. Evaluate the view that the best allocation of resources from society’s point of view is at competitive market equilibrium, where social (community) surplus (consumer surplus and producer surplus) is maximized (marginal benefit =   marginal cost).

                                                                                    

                                                                                             

Section 1.4 & 2.3 Vocabulary

 Read Chapter 30 in the McConnell Brue Textbook 

Essential Question(s):

1. Define community surplus, social efficiency, and Pareto optimality
2.  Examine the concept of market failure as a failure of the market to achieve allocative efficiency, resulting in an over allocation of resources (overprovision of a good) or an under-allocation of resources (under-provision of a good)
3. Explain the concepts of marginal private benefits (MPB), marginal social benefits (MSB), marginal private costs (MPC) and marginal social costs (MSC).
4. Describe the meaning of externalities as the failure of the market to achieve a social optimum where MSB = MSC.
5. Explain, using diagrams and examples, the concepts of negative externalities of production and consumption, and the welfare loss associated with the production or consumption of a good or service.
6. Explain that demerit goods are goods whose consumption creates external costs.
7. Evaluate, using diagrams, the use of policy responses, including market-based policies (taxation and tradable permits), and government regulations, to the  problem of negative externalities of production and consumption
8. Explain using diagrams and examples, the concepts of positive externalities of production and consumption, and the welfare loss associated with the production or consumption of a good or service.
9. Explain that merit goods are goods whose consumption creates external benefits.
10. Evaluate, using diagrams, the use of government responses, including subsidies, legislation, advertising to influence behavior, and direct provision of goods and services.
11. Using the concepts of rivalry and excludability, and providing examples, distinguish between public goods (non-rivalries and non-excludable) and private goods (rivalries and excludable).
12. Explain, with reference to the free rider problem, how the lack of public goods indicates market failure.
13. Discuss the implications of the direct provision of public goods by government.
14. Explain, using examples, common access resources.
15. Apply the concept of sustainability to the problem of common access resources.
16. Examine the consequences of the lack of a pricing mechanism for common access resources means that these goods may be overused/depleted/ degraded as a result of activities of producers and consumers who do not pay for the resources that they use, and that this poses a threat to sustainability.
17. Discuss, using negative externalities diagrams, that economic activity requiring the use of fossil fuels to satisfy demand poses a threat to sustainability.
18. Discuss the view that the existence of poverty in economically less developed countries creates negative externalities through over-exploitation of land for agriculture, and that this poses a threat to sustainability.
19. Evaluate, using diagrams, possible government responses to threats to sustainability, including legislation, carbon taxes, cap and trade schemes, and funding for clean technologies.
20. Explain, using examples, that government response to threats to sustainability are limited by the global nature of the problems and the lack of ownership of common access resources, and that effective responses require international cooperation.
21. Explain, using examples, that market failure may occur when one party in an economic transaction (either the buyer or the seller) possesses more information than the other party.
22. Evaluate possible government responses, including legislation, regulation and provision of information.
23. Explain how monopoly power can create a welfare loss and is therefore a type of market failure.
24. Discuss possible government responses, including legislation, regulation, nationalization and trade liberalization.

2.3 Macroeconomic Objectives: Equity in the distribution of income

23. Explain that due to unequal ownership of factors of production, the market system may   not result in an equitable distribution of income.

24. Draw a Lorenz curve and explain its significance. 

25. Explain how the Gini coefficient is derived and interpreted.

26. Distinguish between absolute poverty and relative poverty.

27. Explain possible causes of poverty, including low incomes, unemployment and lack of     human capital. 

28. Explain possible consequences of poverty, including low living standards, and lack of       access to health care and education.

2.3 Macroeconomic objectives: The Role of Taxation in Promoting Equity

29. Distinguish between direct and indirect taxes, providing examples of each, and explain that direct axes may be used as a mechanism to redistribute income.

30. Distinguish between progressive, regressive and proportional taxation, providing     examples of each.

31. Explain that governments undertake expenditures to provide directly, or to subsidize, a variety of socially desirable goods and services (including health care services,                     education, and infrastructure that includes sanitation and clean water supplies),                     thereby making them available to those on low incomes.

32. Explain the term transfer payments, and provide examples, including old age pensions, unemployment benefits and child allowances.      

                                                                                            

Section 1.5B Revenue, Profit, and Perfect Competition

Section 1.5B Revenue, Profit, Goal of the Firms, and Perfect Competition Vocabulary

 Read Chapter 23  in the McConnell Brue Textbook

Essential Questions:

Revenues

1. Distinguish between total revenue, average revenue and marginal revenue.
2. Draw diagrams illustrating the relationship between total revenue, average revenue and marginal revenue.
3. Calculate total revenue, average revenue and marginal revenue from a set of data and/or diagrams.

Profit             

4. Describe economic profit (abnormal profit) as the case where total revenue exceeds economic cost.
5. Explain the concept of normal profit (zero economic profit) as the amount of revenue needed to cover the costs of employing self-owned resources (implicit costs, including entrepreneurship) or the amount of revenue needed to just keep the firm in business.
6. Explain that economic profit (abnormal profit) is profit over and above normal profit (zero economic profit), and that the firm earns normal profit (abnormal profit) when economic profit is zero.
7. Explain why a firm will continue to operate even when it earns zero economic profit (abnormal profit).
8. Explain the meaning of loss as negative economic profit arising when total revenue is less than total cost.
9. Calculate different profit levels from a set of data and/or diagrams.

Goals of firms

10. Explain the goal of profit maximization where the difference between total revenue and total cost is maximized or where marginal revenue equals marginal cost.

Perfect competition

11. Describe, using examples, the assumed characteristics of perfect competition: a large number of firms; a homogeneous product; freedom of entry and exit; perfect information; perfect resource mobility.
12. Explain, using a diagram, the shape of the perfectly competitive firm’s average revenue and marginal revenue curves, indicating that the assumptions of perfect competition imply that each firm is a price taker.
13. Explain, using a diagram, that the perfectly competitive firm’s average revenue and marginal revenue curves are derived from market equilibrium for the industry.
14. Explain, using diagrams, that it is possible for a perfectly competitive firm to make economic profit (abnormal profit), normal profit (zero economic profit) or negative economic profit in the short run based on the marginal cost and marginal revenue profit maximization rule.
15. Explain, using a diagram, why, in the long run, a perfectly competitive firm will make normal profit (zero economic profit) .
16. Explain, using a diagram, how a perfectly competitive market will move from short-run equilibrium to long-run equilibrium.
17. Distinguish between the short run shut-down price and the break-even price.
18. Explain, using a diagram, when a loss-making firm would shut down in the short run.
19. Explain, using a diagram, when a loss-making firm would shut down and exit the market in the long run.
20. Calculate the short run shutdown price and the breakeven price from a set of data.
21. Explain the meaning of the term allocative efficiency.
22. Explain that the condition for allocative efficiency is P = MC (or, with externalities,

MSB = MSC).

23. Explain, using a diagram, why a perfectly competitive market leads to allocative efficiency in both the short run and the long run.
24. Explain the meaning of the term productive/technical efficiency.
25. Explain that the condition for productive efficiency is that production takes place at minimum average total cost.
26. Explain, using a diagram, why a perfectly competitive firm will be productively efficient in the long run, though not necessarily in the short run.

                                                                                             

Section 1.5A Theory of the firm and market structures Production and costs

Section 1.5A Production Cost Vocabulary

Read Chapter 22 in the McConnell Brue Textbook

Essential Question(s):

1. Distinguish between the short run and long run in the context of production.
2. Define total product, average product and marginal product, and construct diagrams to show their relationship.
3. Explain the law of diminishing returns.
4. Calculate total, average and marginal product from a set of data and/or diagrams.
5. Explain the meaning of economic costs as the opportunity cost of all resources employed by the firm (including entrepreneurship).
6. Distinguish between explicit costs and implicit costs as the two components of economic costs.
7. Explain the distinction between the short run and the long run, with reference to fixed factors and variable factors.
8. Distinguish between total costs, marginal costs and average costs.
9. Draw diagrams illustrating the relationship between marginal costs and average costs, and explain the connection with production in the short run.
10. Explain the relationship between the product curves (average product and marginal product) and the cost curves (average variable cost and marginal cost), with reference to the law of diminishing returns.
11. Calculate total fixed costs, total variable costs, total costs, average fixed costs, average variable costs, average total costs and marginal costs from a set of data and/or diagrams.
12. Distinguish between increasing returns to scale, decreasing returns to scale and constant returns to scale.
13. Explain the relationship between short-run average costs and long-run average costs.
14. Explain, using a diagram, the reason for the shape of the long-run average total cost curve.
15. Explain factors giving rise to economies of scale, including specialization, efficiency, marketing and indivisibility.

1. Explain factors giving rise to dis economies of scale, including problems of coordination and communication. 

                                                                                                                 

                                                                                                  

Section 1.5C Monopolies

Section 1.5C Monopolies & Price Discrimination Vocabulary

 Read Chapter 24 in the McConnell Brue Textbook 

Essential Questions:

        

     Section 1.5C Monopolies Essential Questions:

1.    Describe, using examples, the assumed characteristics of a monopoly: a single or dominant firm in the market; no close substitutes; significant barriers to entry

2.    Explain, using examples, barriers to entry, including economies of scale, branding and legal barriers.

3.    Explain that the average revenue curve for a monopolist is the market demand curve, which will be downward sloping.

4.    Explain, using a diagram, the relationship between demand, average revenue and marginal revenue in a monopoly.

5.    Explain why a monopolist will never choose to operate on the inelastic portion of its average revenue curve.

6.    Explain, using a diagram, the short- and long-run equilibrium output and pricing decision of a profit maximizing (loss minimizing) monopolist, identifying the firm’s economic profit (abnormal profit) or losses.

7.    Examine the role of barriers to entry in permitting the firm to earn economic profit (abnormal profit).

8.  Explain alternative goals of firms, including revenue maximization, growth maximization, satisficing and corporate social responsibility.

9.  Explain, using a diagram, the output and pricing decision of a revenue maximizing monopoly firm.

10.  Compare and contrast, using a diagram, the equilibrium positions of a profit maximizing monopoly firm and a revenue maximizing monopoly firm.

11.  Calculate from a set of data and/or diagrams the revenue maximizing level of output.

12.  With reference to economies of scale, and using examples, explain the meaning of the term “natural monopoly”.

13.  Draw a diagram illustrating a natural monopoly.

14.  Explain, using diagrams, why the profit maximizing choices of a monopoly firm lead to allocative inefficiency (welfare loss) and productive inefficiency.

15.  Evaluate reasons why, despite inefficiencies, a monopoly may be considered desirable for a variety of reasons, including the ability to finance research and development (R&D) from economic profits (abnormal profit), the need to innovate to maintain economic profit, and the possibility of economies of scale.

16.  Evaluate the role of legislation and regulation in reducing monopoly power.

17.  Draw diagrams and use them to compare and contrast a monopoly market with a perfectly competitive market, with reference to factors including efficiency, price and output, research and development (R&D) and economies of scale.

18. Explain how monopoly power can create a welfare loss and is therefore a type of market failure.

19. Discuss possible government responses, including legislation, regulation, nationalization and trade liberalization.

                                                                                             

        Section 1.5D Monopolistic Competition, Oligopoly & Price discrimination

         Price discrimination

20.  Describe price discrimination as the practice of charging different prices to different consumer groups for the same product, where the price difference is not justified by differences in cost.

21.  Explain that price discrimination may only take place if all of the following conditions exist: the firm must possess some degree of market power; there must be groups of consumers with differing price elasticities of demand for the product; the firm must be able to separate groups to ensure that no resale of the product occurs.

22.  Draw a diagram to illustrate how a firm maximizes profit in third degree price discrimination, explaining why the higher price is set in the market with the relatively more inelastic demand.

                                                                                                            

_________________________________________________

WHAT IS ON THE ECON MILESTONE?

MORE INFORMATION CAN BE FOUND AT THE FOLLOWING LINK

http://www.doe.k12.ga.us/

What is the purpose of the Milestone EOCT?

    The EOCT program was created to improve student achievement through effective instruction and assessment of the standards in the eight EOCT core high school courses. The EOCT program helps to ensure that all Georgia students have access to a rigorous curriculum that meets high performance standards. The purpose of the EOCT is to provide diagnostic data that can be used to enhance instructional programs.

How does the Milestone EOCT affect the student’s grade?

• The EOCT is the final exam for an EOCT course.
• The student’s final grade in the course will be calculated using the course grade as 80% and the EOCT score as 20% of the final grade.

What is the format of the Milestone EOCT?

• The Milestone EOCT is administered via an online format.
• Each test has 80 questions and is administered in two 70 minute sections.

What are the major topics on the EOCT?

• Economic Concepts: Identifying and explaining scarcity, opportunity cost, and supply and demand, as well as
  the four factors of production
• Producers and Consumers: Describing how specialization relates to the factors of production, analyzing the effects of these resources on economic development, and examining the roles of the individual as a worker and as a consumer
• Microeconomics: Elements in the Marketplace: Identifying various market structures and business organizations, describing how the interaction of supply and demand determines prices, and examining government involvement and external issues that affect business and labor
• Macroeconomics: The National Economy: Analyzing economic performance indicators, describing the interaction between aggregate supply and aggregate demand, analyzing the fiscal policy of the federal government and monetary policy of the Federal Reserve.
• Personal Finance: Includes budgeting, record keeping, income and net worth understanding. Also includes review of credit, saving and investing, retirement and insurance needs.
• The International Economy: Differentiating among economic systems in an international setting and analyzing economic relationships among nations, including international trade and global interdependence

Links for more information.

• Georgia Department of Education (http://www.doe.k12.ga.us/)

                                                                                                                     

                                                                                        

                                                                                                                                                                                                                 

Section 1.6 Factor Markets

Section 1.6 Factor Market (Vocabulary) 

Read chapter 27, 28, & 29 in the McConnell Brue Textbook

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, monopsonies, 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.
Essential Question(s):

• Present four major reasons for studying resource pricing.
• Explain the concept of derived demand as it applies to resource demand.
• Determine the marginal-revenue-product schedule for an input when given appropriate data.
• State the principle employed by a profit maximizing firm in determining how much of a resource it will employ.
• Apply the MRP = MRC principle to find the quantity of a resource a firm will employ when given the necessary data.
• Explain why the MRP schedule of a resource is the firm’s demand schedule for the resource in a purely competitive product market.
• Explain why the resource demand curve is downward sloping when a firm is selling output in a purely competitive product market; an imperfectly competitive product market.
• List the three determinants of demand for a resource and explain how a change in each of the determinants would affect the demand for the resource.
• Explain what demand factors have influenced the growth and decline of the occupations listed in Tables 25.5 and 25.6.
• List three determinants of the price elasticity of demand for a resource, and state how changes in each would affect the elasticity of demand for a resource.
• State the rule for determining the least cost combination of resources.
• Find the least cost combination of resources when given appropriate data.
• State the rule used by a profit maximizing firm to determine how much of each of several resources to employ.
• When given necessary data, find the quantities of two or more resources a profit maximizing firm will hire.
• Explain the marginal productivity theory of income distribution and present two criticisms of it.
• Differentiate between nominal and real wages.
• List those factors that have led to an increasing level of real wages in the U.S. historically.
• Determine the equilibrium wage rate and employment level when given appropriate data for a firm operating in a purely competitive product and labor market; a firm operating in a monopolistically competitive product market and a purely competitive labor market; and a firm operating in a purely competitive product market and a monopolistic labor market.
• Illustrate graphically how wage rates are determined in purely competitive and monopolistic labor markets.
• List the methods used by labor organizations to increase wages and the impact each has on employment.  Give specific examples.
• Illustrate graphically how an inclusive (industrial) union and an exclusive (craft) union would affect wages and employment in a previously competitive labor market.
• Explain and illustrate graphically wage determination in the bilateral monopoly model.
• Present the major points in the cases for and against the minimum wage.
• Explain the demand factors that create wage differentials.
• Explain the supply factors that create wage differentials.
• Describe briefly salary systems in which pay is linked to performance rather than to time.
• Describe the negative side effects of poorly planned incentive pay plans.

                                                                                                           

 Section 1.5D Monopolistic Competition, Oligopoly & Price discrimination

Section 1.5D Monopolist Competition & Oligopolies

Read Chapter 25 & 26 in the McConnell Brue Textbook

Essential Questions:
Monopolistic Competition

1. Describe, using examples, the assumed characteristics of a monopolistic competition: a large number of firms; differentiated products; absence of barriers to entry and exit.
2. Explain that product differentiation leads to a small degree of monopoly power and therefore to a negatively sloping demand curve for the product.
3. Explain, using a diagram, the short-run equilibrium output and pricing decisions of a profit maximizing (loss minimizing) firm in monopolistic competition, identifying the firm’s economic profit (or loss).
4. Explain, using diagrams, why in the long run a firm in monopolistic competition will make normal profits.
5. Distinguish between price competition and non-price competition.
6. Describe examples of non-price competition, including advertising, packaging, product development and quality of service.
7. Explain, using a diagram, why neither allocative efficiency nor productive efficiency are achieved by monopolistically competitive firms.
8. Compare and contrast, using diagrams, monopolistic competition with perfect competition, and monopolistic competition with monopoly, with reference to factors including short run, long run, market power, allocative and productive efficiency, number of producers, economies of scale, ease of entry and exit, size of firms and product differentiation.

Oligopoly

1. Describe, using examples, the assumed characteristics of an oligopoly: the dominance of the industry by a small number of firms; the importance of interdependence; differentiated or homogeneous products; high barriers to entry.
2. Explain why interdependence is responsible for the dilemma faced by oligopolistic firms—whether to compete or to collude.
3. Explain how a concentration ratio may be used to identify an oligopoly.
4. Explain how game theory (the simple prisoner’s dilemma) can illustrate strategic interdependence and the options available to oligopolies.
5. Explain the term “collusion”, give examples, and state that it is usually (in most countries) illegal.
6. Explain the term “cartel”.
7. Explain that the primary goal of a cartel is to limit competition between member firms and to maximize joint profits as if the firms were collectively a monopoly.
8. Explain the incentive of cartel members to cheat.
9. Analyze the conditions that make cartel structures difficult to maintain.
10. Describe the term “tacit collusion”, including reference to price leadership by a dominant firm.
11. Explain that the behavior of firms in a non-collusive oligopoly is strategic in order to take account of possible actions by rivals.
12. Explain, using a diagram, the existence of price rigidities, with reference to the kinked demand curve.
13. Explain why non-price competition is common in oligopolistic markets, with reference to the risk of price wars.
14. Describe, using examples, types of non-price competition.

Price discrimination

1. Describe price discrimination as the practice of charging different prices to different consumer groups for the same product, where the price difference is not justified by differences in cost.
2. Explain that price discrimination may only take place if all of the following conditions exist: the firm must possess some degree of market power; there must be groups of consumers with differing price elasticity’s of demand for the product; the firm must be able to separate groups to ensure that no resale of the product occurs.
3. Draw a diagram to illustrate how a firm maximizes profit in third degree price discrimination, explaining why the higher price is set in the market with the relatively more inelastic demand.