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AP Microeconomics Comprehensive Syllabus

April 14, 2023
AP - Comprehensive Syllabus
TYCHR

Table of Contents

1 Unit 1: Basic Economic Concepts
2 Unit 2: Supply and Demand
3 Unit 3: Production, Cost and the Perfect Competition Model
4 Unit 4: Imperfect Competition
5 Unit 5: Factor Markets
6 Unit 6: Market Failure and the Role of the Government

Unit 1: Basic Economic Concepts

Subtopic Name	Subtopic Number	Key Points
Scarcity	1.1	Scarcity implies limited resources and unlimited wants. Opportunity cost is the value of the next-best alternative that must be given up. Scarcity affects both demand and supply. Market prices reflect the scarcity of goods and services. Efficient resource allocation is crucial to maximize production. Microeconomics studies how markets allocate resources and improve efficiency.
Resource Allocation and Economic Systems	1.2	Resource allocation refers to the distribution of resources among competing uses. Economic systems are the institutional frameworks that societies use to allocate resources. Three main economic systems are market economies, command economies, and mixed economies. Market economies rely on price signals to allocate resources. Command economies rely on central planning to allocate resources. Mixed economies use a combination of market and command mechanisms to allocate resources.
Production Possibilities Curve	1.3	Production possibility curves show the maximum combinations of two goods that can be produced with given resources. Points on the curve represent efficient production. Points inside the curve represent inefficient production. Points outside the curve represent unattainable production. The slope of the curve represents the opportunity cost of producing one good in terms of the other. Shifts in the curve can be caused by changes in resource availability or improvements in technology.
Comparative Advantage and Trade	1.4	Comparative advantage is the ability to produce a good or service at a lower opportunity cost than others. Trade allows countries to specialize in producing goods in which they have a comparative advantage. Trade can lead to increased efficiency and higher standards of living. Tariffs and other trade barriers can reduce the gains from trade.
Cost-Benefit Analysis	1.5	Cost-benefit analysis is a method of evaluating the desirability of a project or policy by comparing its costs and benefits. Costs and benefits are measured in monetary terms. A project or policy is desirable if its benefits outweigh its costs. Cost-benefit analysis is a useful tool for making decisions about public investments and regulations.
Marginal Analysis and Consumer Choice	1.6	Marginal analysis involves examining the incremental benefits and costs of a decision. Rational consumers make choices based on marginal utility, which is the additional satisfaction they receive from consuming one more unit of a good or service. The law of diminishing marginal utility states that the marginal utility of a good or service decreases as consumption increases. Consumers will maximize their utility by consuming goods up to the point where the marginal utility per dollar spent is equal for all goods.

Unit 2: Supply and Demand

Subtopic Name	Subtopic Number	Key points
Demand	2.1	Demand refers to the quantity of a good or service that consumers are willing and able to buy at a particular price and time. Law of Demand: This law states that as the price of a good or service increases, the quantity demanded decreases, and vice versa, all other things being equal. Shifts in Demand: There are factors other than price that can cause a change in demand, such as changes in consumer income, tastes and preferences, the prices of related goods or services, and the number of consumers in the market. Demand Curve: The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded, holding all other factors constant. It slopes downward due to the law of demand.
Supply	2.2	Supply refers to the quantity of a good or service that producers are willing and able to sell at a particular price and time. Law of Supply: This law states that as the price of a good or service increases, the quantity supplied also increases, and vice versa, all other things being equal. Shifts in Supply: There are factors other than price that can cause a change in supply, such as changes in the cost of production, technology, government policies, and the number of suppliers in the market. Supply Curve: The supply curve is a graphical representation of the relationship between the price of a good or service and the quantity supplied, holding all other factors constant. It slopes upward due to the law of supply.
Price Elasticity of Demand	2.3	Price elasticity of demand refers to the responsiveness of quantity demanded to changes in the price of a good or service. Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. A price elasticity of demand greater than 1 indicates that demand is elastic, meaning that a small change in price leads to a relatively larger change in quantity demanded. A price elasticity of demand less than 1 indicates that demand is inelastic, meaning that a change in price leads to a relatively smaller change in quantity demanded. Factors affecting elasticity: The price elasticity of demand is affected by factors such as the availability of substitutes, the proportion of income spent on the good or service, and the time period considered.
Price Elasticity of Supply	2.4	Price elasticity of supply refers to the responsiveness of quantity supplied to changes in the price of a good or service. Price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. Interpretation: A price elasticity of supply greater than 1 indicates that supply is elastic, meaning that a small change in price leads to a relatively larger change in quantity supplied. A price elasticity of supply less than 1 indicates that supply is inelastic, meaning that a change in price leads to a relatively smaller change in quantity supplied. Factors affecting elasticity: The price elasticity of supply is affected by factors such as the availability of inputs, the time period considered, and the ability of producers to switch to alternative products or production methods.
Other Elasticities	2.5	Cross-price elasticity of demand: This measures the responsiveness of quantity demanded of one good to changes in the price of another good. It is calculated as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good. Income elasticity of demand: This measures the responsiveness of quantity demanded to changes in consumer income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
Market Equilibrium and Consumer and Producer Surplus	2.6	Market equilibrium: This occurs when the quantity demanded equals the quantity supplied at a particular price, resulting in no shortage or surplus of the good or service in the market. Consumer surplus: This measures the difference between the highest price a consumer is willing to pay for a good or service and the actual price they pay. It represents the benefit or surplus that consumers receive from consuming the good or service. Producer surplus: This measures the difference between the lowest price a producer is willing to accept for a good or service and the actual price they receive. It represents the benefit or surplus that producers receive from producing and selling the good or service. Efficient allocation of resources: The market equilibrium, along with consumer and producer surplus, leads to an efficient allocation of resources, where the marginal cost of production equals the marginal benefit of consumption.
Market Disequilibrium and Changes in Equilibrium	2.7	Market disequilibrium: This occurs when the quantity demanded and quantity supplied in a market are not equal at a particular price, resulting in either a shortage or surplus of the good or service. Surplus and shortage: A surplus occurs when the quantity supplied exceeds the quantity demanded at a given price, leading to downward pressure on price. A shortage occurs when the quantity demanded exceeds the quantity supplied at a given price, leading to upward pressure on price. Shifts in demand and supply: Changes in demand or supply can shift the demand or supply curve, leading to a new equilibrium price and quantity in the market.
The Effects of Government Intervention in Markets	2.8	Price floors and ceilings: Government-imposed price floors and ceilings can create surpluses or shortages in markets, leading to deadweight loss and inefficiency. Taxes and subsidies: Taxes on goods and services can decrease demand, while subsidies can increase supply. Both can have a significant effect on market equilibrium and can be used to achieve specific policy goals.
International Trade and Public Policy	2.9	Tariffs and trade barriers: Tariffs and other trade barriers can create deadweight loss and inefficiency, although they can also protect domestic industries from foreign competition. Trade agreements: Trade agreements can reduce or eliminate tariffs and other trade barriers, leading to increased trade and economic welfare. Exchange rates: Changes in exchange rates can affect the relative prices of imports and exports, leading to changes in the volume of trade between countries. Government intervention in exchange rates can have significant effects on international trade and economic welfare.

Unit 3: Production, Cost and the Perfect Competition Model

Subtopic Name	Subtopic Number	Key points
The Production Function	3.1	Total, average, and marginal product: The total product is the total output produced with a given set of inputs, while the average product is the output per unit of input. The marginal product is the additional output produced when one additional unit of input is added. Law of diminishing returns: The law of diminishing returns states that as more units of a variable input (such as labor) are added to a fixed input (such as capital), the marginal product of the variable input will eventually decrease. Short-run and long-run production: In the short run, at least one input is fixed and cannot be changed, while in the long run, all inputs can be varied. The long-run production function can be used to analyze the effects of changing all inputs on output.
Short-run Production Costs	3.2	Fixed and variable costs: In the short run, some costs, such as fixed costs (e.g., rent, insurance) cannot be changed, while variable costs (e.g., labor, materials) can be adjusted. Total, average, and marginal costs: The total cost is the sum of all fixed and variable costs, while the average cost is the total cost divided by the quantity produced. The marginal cost is the additional cost of producing one additional unit of output.
Long-run Production Costs	3.3	Economies of scale: Long-run average costs can decrease as the scale of production increases due to factors such as specialization, division of labor, and efficient use of capital. Minimum efficient scale: The minimum efficient scale is the level of output at which the long-run average cost is minimized. Firms operating below this level may experience diseconomies of scale, while firms operating above this level may experience diminishing returns to scale.
Types of Profit	3.4	Economic profit: Economic profit is the total revenue minus both explicit and implicit costs (such as the opportunity cost of the owner’s time and investment) and is a more comprehensive measure of profit. Normal profit: Normal profit is the minimum level of profit required to keep a firm in operation and is equal to the opportunity cost of the owner’s resources. Supernormal profit: Supernormal profit (also called economic profit) is profit that exceeds normal profit and represents a return on investment above what is necessary to keep the firm in operation. It can be an indicator of market power or innovation.
Profit Maximization	3.5	Marginal analysis: Firms maximize profits by producing the quantity of output where marginal revenue equals marginal cost. Total revenue-total cost approach: Firms can also determine the quantity of output that maximizes profits by comparing total revenue to total cost and choosing the level of output where the difference between total revenue and total cost is greatest. Short-run versus long-run profit maximization: In the short run, firms may continue to operate even if they are making losses, as long as they are covering their variable costs. In the long run, firms must earn profits to remain in business.
Firms’ Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market	3.6	Short-run production decisions: In the short run, firms make production decisions based on the marginal cost and marginal revenue of each unit of output. If marginal revenue exceeds marginal cost, the firm should produce more; if marginal cost exceeds marginal revenue, the firm should produce less. Long-run market entry and exit decisions: In the long run, firms make decisions to enter or exit a market based on the potential for profit. If profits are high, new firms will enter the market, while existing firms may expand their production. If profits are low, firms may exit the market or reduce their production.
Perfect Competition	3.7	Large number of firms: In a perfectly competitive market, there are many small firms that have no market power and cannot influence the market price. Homogeneous products: All firms in a perfectly competitive market produce identical products. Perfect information: Consumers have perfect information about the market, including the prices and characteristics of all products.

Unit 4: Imperfect Competition

Subtopic Name	Subtopic Number	Key points
Introduction to Imperfectly Competitive Markets	4.1	Market Power Product Differentiation Barriers to entry
Monopoly	4.2	Single supplier: A monopoly market has a single supplier of a unique product with no close substitutes. Market power: The monopoly supplier has significant market power and can control the market price by varying its output. Barriers to entry: Monopolies often have barriers to entry, such as patents, economies of scale, or legal regulations, which prevent other firms from entering the market and competing with the monopoly.
Price Discrimination	4.3	Charging different prices: Price discrimination refers to the practice of charging different prices for the same product to different customers or in different markets. Conditions for price discrimination: For price discrimination to be possible, there must be differences in the price elasticity of demand between different groups of customers, and the monopolist must have market power and be able to prevent resale of the product. Types of price discrimination: There are three types of price discrimination: first-degree, second-degree, and third-degree.
Monopolistic Competition	4.4	Differentiated products: Monopolistically competitive firms produce differentiated products that are not perfect substitutes, allowing them some degree of market power. Low barriers to entry: Monopolistic competition markets have low barriers to entry, allowing firms to enter and exit the market easily, which creates a relatively large number of firms. Short-run profits: Firms in monopolistic competition can earn short-run profits by charging prices above their marginal cost.
Oligopoly and Game Theory	4.5	Few dominant firms: Oligopoly markets are dominated by a few large firms, which have significant market power and can influence the market price. Strategic behavior: Oligopolies involve strategic behavior, where firms make decisions based on how they expect their rivals to respond. Game theory: Game theory is a tool used to analyze the behavior of firms in oligopoly markets, which considers how firms’ decisions affect both their own profits and the profits of their rivals.

Unit 5: Factor Markets

Subtopic Name	Subtopic Number	Key points
Introduction to Factor Markets	5.1	Factors of production: Factor markets are where factors of production, such as labor, capital, and land, are bought and sold.
Changes in Factor Demand and Factor Supply	5.2	Changes in factor demand: Factor demand refers to the amount of a factor that firms are willing and able to hire at a given price. Changes in factor supply: Factor supply refers to the amount of a factor that individuals or firms are willing and able to sell at a given price.
Profit-Maximizing Behavior in Perfectly Competitive Factor Markets	5.3	Profit maximization: Firms will continue to hire factors as long as the marginal revenue product of the factor exceeds the marginal factor cost.
Monopsonistic Markets	5.4	Monopsony power: A monopsonistic market is characterized by a single buyer having market power to influence the price of the factor it purchases.

Unit 6: Market Failure and the Role of the Government

Subtopic Name	Subtopic Number	Key points
Socially Efficient and Inefficient Market Outcomes	6.1	Socially efficient outcome: A market is socially efficient when the marginal social benefit of consumption equals the marginal social cost of production. Market failures: Market failures occur when the market fails to allocate resources efficiently, either due to externalities, public goods, imperfect competition, or asymmetric information.
Externalities	6.2	Negative externalities: Negative externalities are the costs imposed on society by economic activities, such as pollution, traffic congestion, or noise. Positive externalities: Positive externalities are the benefits generated by economic activities, such as education, research, or vaccinations.
Public and Private Goods	6.3	Public goods: Public goods are non-excludable and non-rivalrous, meaning that individuals cannot be excluded from consuming the good, and one individual’s consumption does not reduce the availability of the good to others. Private goods: Private goods are both excludable and rivalrous, meaning that individuals can be excluded from consuming the good, and one individual’s consumption reduces the availability of the good to others.
The Effects of Government Intervention in Different Market Structures	6.4	Price controls: Price controls, such as price ceilings or floors, can result in shortages or surpluses in both perfectly competitive and imperfectly competitive markets. Regulation: Regulation can be used to prevent monopolies from abusing their market power, or to address negative externalities, but may also increase costs and reduce efficiency in competitive markets.
Inequality	6.5	Inequality refers to the unequal distribution of income and wealth among individuals or groups within a society. Factors that contribute to inequality include differences in skills and education, discrimination, and market power. Public policies, such as progressive taxation and social safety net programs, can be used to mitigate the effects of inequality.