Micro PDF

UNIT
1 12–15% AP EXAM WEIGHTING ~9–11 CLASS PERIODS
Basic Economic
Concepts
Developing Understanding
BIG IDEA 1 To understand economics, students need to understand that because most resources are
Scarcity and scarce, individuals and societies must make choices. When making rational choices, people
Markets MKT do so “on the margin,” taking into account the additional costs and benefits of their decisions.
§§ How do individuals and The foundational economic ideas addressed in this unit form the basis for more advanced
economies confront the analysis of consumer and producer behavior that will be developed throughout the course.
problem of scarcity?
§§ Why do people and Building Course Skills Preparing for the AP Exam
countries trade with
1.A 1.C 1.D 2.C 4.A Questions that require students to analyze
one another?
This unit focuses on providing students with quantitative data and perform calculations
a thorough understanding of basic economic to demonstrate their mastery of consumer
BIG IDEA 2
concepts. They need this understanding to be theory are a frequent challenge area on the
Costs, Benefits,
able to apply these concepts in subsequent AP Exam. While many students grasp the
and Marginal
units as the content increases in difficulty. concept of consumer optimization, they
Analysis CBA
Many students have not had significant are unable to apply that understanding
§§ Why do all decisions
exposure to the study of economics in using numbers. To prepare students for the
have costs?
previous coursework, which means that exam, spend time first grounding students
§§ Why do people consider
thinking like an economist (e.g., evaluating conceptually in the principles and logic
the additional costs and
decisions based on constraints and trade-offs behind consumer theory and then reinforce
benefits of possible
and thinking on the margin) may not come this learning by providing opportunities
actions rather than
naturally. Students can begin to develop this for students to practice using numerical
just the total costs
skill set early on by using simulations and examples. Students should understand the
and benefits when
examples relevant to their lives. For example, if importance of showing their work when
making decisions?
students engage in a simulation in which they doing any calculations in the course.
consume additional units of a good and record Graphical models are first introduced in
the utility of consuming each additional unit this unit. Graphing is an important skill
(please refer to the sample activities for Unit 1 in this course that will be tested in the
on p. 33), they will be better able to understand free-response section of the AP Exam. It's
marginal decision making and the concept helpful to model how to set up their graphs in
of diminishing marginal utility. By actually this unit and throughout the course, stressing
experiencing these concepts, students will be the importance of properly labeling axes
better equipped to describe them in their own and curves, and providing opportunities
words and apply them in later contexts. for students to practice setting up graphs
themselves and interpreting situations
represented graphically.
AP Microeconomics Course and Exam Description Course Framework V.1 | 31

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© 2019 College Board
UNIT
1 Basic Economic Concepts
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
Topic Suggested Skills ~9–11 CLASS PERIODS
1.1 Scarcity 1.A Describe economic concepts, principles,

or models.
1.2 Resource Allocation and 1.D Describe the similarities, differences, and
MKT-1
Economic Systems limitations of economic concepts, principles,

or models.
1.3 Production 4.A Draw an accurately labeled graph or visual

Possibilities Curve to represent an economic model or market.
MKT-2
1.4 Comparative Advantage 1.C Identify an economic concept, principle, or

and Trade model using quantitative data or calculations.
CBA-1
1.5 Cost-Benefit Analysis 1.C Identify an economic concept, principle, or

model using quantitative data or calculations.
CBA-2
1.6 Marginal Analysis and 2.C Interpret a specific economic outcome using
Consumer Choice quantitative data or calculations.
Go to AP Classroom to assign the Personal Progress Check for Unit 1.

Review the results in class to identify and address any student misunderstandings.

UNIT
Basic Economic Concepts
1
SAMPLE INSTRUCTIONAL ACTIVITIES
The sample activities on this page are optional and are offered to provide possible ways to
incorporate various instructional approaches into the classroom. Teachers do not need to use
these activities or instructional approaches and are free to alter or edit them. The examples
below were developed in partnership with teachers from the AP community to share ways
that they approach teaching some of the topics in this unit. Please refer to the Instructional
Approaches section beginning on p. 105 for more examples of activities and strategies.
Activity Topic Sample Activity
1 1.1 Real-World Examples

Remove a few desks from the classroom so that on the first day of class there aren’t
enough desks for each student. When students recognize the problem, discuss how the
class will decide who gets a desk. This is a good way to introduce the problem of scarcity.
It allows students to discuss trade-offs and resource allocation.
2 1.3 Graph and Switch

Create a list of situations that can be illustrated with the production possibilities curve.
Pair students and distribute a small whiteboard to each student. Read a scenario and
instruct students to draw a graph that represents the situation. Then have students share
their graphs with their partner and provide feedback to each other.
3 1.5 Authentic Tasks

Assign students to investigate the total costs and benefits of a decision relevant to
their lives. For example, students might research the total costs and benefits of receiving
a college degree. Then have students evaluate whether that decision makes sense by
comparing total benefits and total costs.
4 1.6 Simulation and Debriefing

Carry out a classroom simulation where students consume additional units of a good
(e.g., glasses of water, marshmallows, or pieces of candy) and record the utility of consuming
each additional unit on a scale of 1–10. Debrief the activity as a class to connect the
experience to the concepts of marginal decision making and diminishing marginal utility.
Unit Planning Notes

Use the space below to plan your approach to the unit. Consider how you want to pace your course and
methods of instruction and assessment.

UNIT
SUGGESTED SKILL
Principles and
TOPIC 1.1
Scarcity
Models
1.A
Describe economic
concepts, principles,
or models.
Required Course Content
ENDURING UNDERSTANDING
MKT-1
Most resources are scarce, and in most cases the use of resources involves
constraints and trade-offs.
LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE

MKT-1.A MKT-1.A.1
Define resources and the Economic trade-offs arise from the lack of
cause(s) of their scarcity. sufficient resources (scarcity) to meet society’s
wants and needs.
MKT-1.A.2
Most factors of production (such as land, labor,
and capital) are scarce, but some factors of
production (such as established knowledge)
may not be scarce due to their non-rival nature.

UNIT
1
TOPIC 1.2 SUGGESTED SKILL
Principles and
Resource Allocation
Models
1.D
Describe the similarities,
and Economic Systems differences, and limitations

of economic concepts,
principles, or models.
MKT-1

MKT-1.B MKT-1.B.1
Define how resource Resource allocation involves answering three
allocation is influenced basic questions: What goods and services to
by the economic system produce? How to produce those goods and
adopted by society. services? And who consumes those goods
and services?
MKT-1.B.2
Resource allocation is significantly influenced
by the economic system adopted by society,
such as command economy, market economy,
or mixed economy. Each system involves a
particular set of institutional arrangements and
a coordinating mechanism for allocating scarce
resources and distributing output.

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 1.3
Production
Visuals
4.A
Draw an accurately
labeled graph or visual to
represent an economic
model or market.
Possibilities Curve
MKT-1

MKT-1.C MKT-1.C.1
a. Define (using graphs The PPC is a model used to show the trade-offs
as appropriate) the associated with allocating resources.
production possibilities MKT-1.C.2
curve (PPC) and The PPC can be used to illustrate the concepts
related terms. of scarcity, opportunity cost, efficiency,
b. Explain (using graphs underutilized resources, and economic growth
as appropriate) how the or contraction.
production possibilities
MKT-1.C.3
curve (PPC) illustrates
The shape of the PPC depends on whether
opportunity costs,
opportunity costs are constant, increasing,
trade-offs, inefficiency,
or decreasing.
efficiency, and economic
growth or contraction MKT-1.C.4
under various conditions. The PPC can shift due to changes in

c. Calculate (using factors of production as well as changes in
data from PPCs or productivity/technology.
tables as appropriate) MKT-1.C.5
opportunity cost. Economic growth results in an outward shift
of the PPC.

UNIT
1
Principles and
Comparative
Models
1.C
Identify an economic
Advantage and Trade concept, principle, or

model using quantitative
data or calculations.
Required Course Content AVAILABLE RESOURCES

§§ External Resource >
Davidson Next
AP Macroeconomics
Course—Comparative
ENDURING UNDERSTANDING Advantage & Trade
MKT-2 §§ Classroom Resources >
The consequences of scarcity can be mitigated through specialization in production w International
and by exchange. Economics and the
AP Microeconomics
Course
w International
LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE Economics—The
MKT-2.A MKT-2.A.1 Basics of Absolute
and Comparative
a. Define absolute advantage Absolute advantage describes a situation
Advantage
and comparative in which an individual, business, or country
advantage. can produce more of a good or service than
b. Determine (using data any other producer with the same quantity
from PPCs or tables as of resources.
appropriate) absolute and MKT-2.A.2
comparative advantage. Comparative advantage describes a situation
in which an individual, business, or country
can produce a good or service at a lower
opportunity cost than another producer.
MKT-2.B MKT-2.B.1
a. Explain (using data Production specialization according
from PPCs or tables to comparative advantage, not absolute
as appropriate) how advantage, results in exchange opportunities
specialization according that lead to consumption possibilities
to comparative advantage beyond the PPC.
with appropriate MKT-2.B.2
terms of trade can lead Comparative advantage and opportunity
to gains from trade. costs determine the terms of trade for
b. Calculate (using data exchange under which mutually beneficial
from PPCs or tables as trade can occur.
appropriate) mutually
beneficial terms of trade.

UNIT
SUGGESTED SKILL
Principles and
TOPIC 1.5
Cost-Benefit Analysis
Models
1.C
concept, principle, or
model using quantitative
CBA-1
Rational economic decisions require the evaluation of costs and benefits.

CBA-1.A CBA-1.A.1
a. Define opportunity cost. Rational agents consider opportunity costs,
b. Explain the opportunity whether implicit or explicit, when calculating
costs associated the total economic costs of any decision.
with choices. CBA-1.A.2
c. Calculate the opportunity Total benefits form the metric “utility” for
costs associated consumers and total revenue for firms.
with choices.
CBA-1.B CBA-1.B.1
a. Explain a decision by Total net benefits, the difference between total
comparing total benefits benefits and total costs, are maximized at the
and total costs (using optimal choice.
a table or a graph CBA-1.B.2
when appropriate). Some decisions permit rational agents to look
b. Calculate total benefits at only marginal benefit and marginal cost.
and total costs (using Other decisions cannot be broken down into
a table or graph increments in this way and must be evaluated
where appropriate). by looking at total benefits and total costs.

UNIT
1
Interpretation
Marginal Analysis and 2.C

Interpret a specific
economic outcome
Consumer Choice using quantitative

Required Course Content AVAILABLE RESOURCE

§§ Classroom Resources
> Mastering
Economic Thinking
Skills—Focusing on
ENDURING UNDERSTANDING Marginal Thinking
and Game Theory in
CBA-2
Microeconomics
To determine the optimal level at which to pursue an activity whose total benefits exceed
total cost, rational economic agents compare marginal benefits and marginal costs.

CBA-2.A CBA-2.A.1
a. Define the key assumptions Consumers face constraints and have to
of consumer choice theory. make optimal decisions accounting for
b. Explain (using a table these constraints.
or graph as appropriate) CBA-2.A.2
how a rational consumer’s In a model of rational consumer choice,
decision making consumers are assumed to make choices so
involves the use of as to maximize their total utility.
marginal benefits and
CBA-2.A.3
marginal costs.
Consumers experience diminishing
c. Calculate (using a marginal utility in the consumption of goods
table or a graph when and services.
appropriate) how a rational
CBA-2.A.4
consumer’s decision
making involves the use Consumers allocate their limited income
of marginal benefits to purchase the combination of goods that
and marginal costs. maximizes their utility by equating/comparing
the marginal utility of the last dollar spent
on each good.
X Exclusion:

Indifference curves are beyond the scope of the
course and the AP Exam, but equating the ratios
of marginal utility to price is within the scope.
continued on next page

UNIT

CBA-2.B CBA-2.B.1
a. Define marginal analysis Marginal analysis involves comparing the
and related terms. additional benefit of increasing a given activity
b. Explain a decision with the additional cost. Comparing marginal
using marginal analysis benefit (MB) with marginal cost (MC) helps
(using a table or a graph individuals (firms) decide whether to increase,
decrease, or maintain their consumption
when appropriate).
(production) levels.
CBA-2.B.2
The optimal quantity at any point in time
does not depend on fixed costs (sunk costs)
or fixed benefits that have already been
determined by past choices.
CBA-2.B.3
The optimal quantity is achieved when
marginal benefit is equal to marginal cost
or where total benefit is maximized.

AP MICROECONOMICS
UNIT 2
Supply and
Demand
20–25%
AP EXAM WEIGHTING
~13–15
CLASS PERIODS

Remember to go to AP Classroom
to assign students the online
Personal Progress Check for
this unit.
Whether assigned as homework or
completed in class, the Personal
Progress Check provides each
student with immediate feedback
related to this unit’s topics and skills.
Personal Progress Check 2

Multiple-choice: ~25 questions
Free-response: 2 questions
§§ Short
§§ Short

UNIT
Supply and Demand
BIG IDEA 1 This unit will provide the basis for understanding how markets work by introducing the
Scarcity and supply and demand model. Students will build on the concepts of scarcity and choice that
Markets MKT were introduced in the first unit and explore the factors that influence consumer and producer
§§ What determines the behavior. They will learn how the interaction of consumers and producers in competitive markets
market price for a good determines market prices and results in the most efficient allocation of scarce resources. At the
or service? end of the unit, students will also begin exploring the effects of government policy on market
§§ What causes market
outcomes, laying the groundwork for additional analysis in the last unit of the course.
prices to change?
Building Course Skills of this unit (e.g., calculating and interpreting
BIG IDEA 4 measures of elasticity and calculating areas
Market Inefficiency and
2.A 3.A 3.C 4.A 4.C of consumer surplus, producer surplus, and
Public Policy POL It is important for students to continue to deadweight loss).
§§ How does government build on their graphing skills in this unit.
Students may apply the wrong formula or
policy affect Many students lose points on the AP Exam
mathematical process, such as when they
market outcomes? for not properly labeling axes and curves on
incorrectly calculate the elasticity of demand
graphs and for not properly demonstrating
as the change in quantity divided by the
the effects of changes on graphs. It can help
change in price, when they should instead
to model the appropriate setup of graphs,
calculate the percentage change in quantity
stressing the importance of proper labeling,
divided by the percentage change in price.
and to provide opportunities for guided
Providing students with opportunities to
practice drawing and manipulating graphs.
practice carrying out these calculations and
Help students to see from the beginning of emphasizing the importance of showing their
the course how graphs can be used as tools work can help identify these types of mistakes
for making sense of economic situations and correct them before the AP Exam.
and predicting and explaining economic
In other cases, though, calculation errors
outcomes. These are important skills in this
reveal a lack of understanding of the
unit in the context of learning about supply
underlying concept, which manifests itself
and demand. Even if a graph is not asked for
in an incorrect calculation. For example,
on the exam, drawing one may help to answer
students might know how to calculate the
a given question or explain a situation.
area of a triangle when asked to calculate
consumer or producer surplus from a given
Preparing for the AP Exam graph but then they calculate the area of
On the AP Exam, students frequently the wrong triangle. Analyzing numbers and
have difficulty answering questions that doing calculations in this course require an
require them to analyze numbers and do understanding of the content itself.
calculations that are relevant to the content

UNIT
2 Supply and Demand
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
2.1 Demand 4.A Draw an accurately labeled graph or visual to

represent an economic model or market.
2.2 Supply 4.A Draw an accurately labeled graph or visual to

2.3 Price Elasticity of Demand 3.C Determine the effect(s) of a change in an

economic situation using quantitative data
MKT-3
or calculations.
2.4 Price Elasticity of Supply 3.C Determine the effect(s) of a change in an

or calculations.
2.5 Other Elasticities 3.C Determine the effect(s) of a change in an

or calculations.
2.6 Market Equilibrium and 2.A Using economic concepts, principles, or

Consumer and Producer models, explain how a specific economic outcome
Surplus occurs or what action should be taken in order to
MKT-4
achieve a specific economic outcome.
2.7 Market Disequilibrium and 3.A Determine the outcome of an economic

Changes in Equilibrium situation using economic concepts, principles,
or models.
2.8 The Effects of Government 4.C Demonstrate the effect of a change in an

Intervention in Markets economic situation on an accurately labeled graph
or visual.
POL-1
2.9 International Trade and 4.C Demonstrate the effect of a change in an

Public Policy economic situation on an accurately labeled graph
or visual.


UNIT
Supply and Demand
2

Carry out a classroom auction for an item of value to introduce students to the relationship
between price and quantity demanded. Use the data from the auction to graph demand.
Then simulate a change in one of the determinants of demand (e.g., by providing students
with fake money to increase their income) so that students can distinguish between a
change in quantity demanded and a change in demand. Debrief the experience with students
to ensure that connections are made to the concepts being studied.

Explain a hypothetical scenario in which you need to hire workers for one hour to clean the
school bathrooms on Friday afternoon or describe another scenario that is applicable to
your students’ lives. Create a supply schedule on the board and conduct an auction, asking
how many students will work for $0, $1, $2, etc. As students respond, ask them to explain
their decisions. Graph the data and discuss the relationship between price and quantity
supplied in the context of their decision making.
3 2.7 Think-Pair-Share
Pair students and tell them to choose an economic good. Provide students with three
index cards on which to write three different situations that will change the good’s demand
or supply. Collect the cards and choose a few to read to the class. For each scenario
that is read out loud, students will draw an accurately labeled supply-demand graph that
demonstrates the effect of the change on equilibrium price and quantity and check their
graphs with their partner. Then call on a student pair to share the graph with the class.
Unit Planning Notes


UNIT
2 Supply and Demand
SUGGESTED SKILL
Graphing and
TOPIC 2.1
Demand
Visuals
4.A
Draw an accurately
model or market.
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Supply &
Demand ENDURING UNDERSTANDING
§§ Classroom Resources > MKT-3
Markets—Lesson: A
Individuals and firms respond to incentives and face constraints.
Comparison of Graphs
from Microeconomics
and Macroeconomics
MKT-3.A MKT-3.A.1
a. Define (using graphs as A well-defined system of property rights is
appropriate) key terms necessary for the market system to function well.
and factors related to MKT-3.A.2
consumer decision making Economic agents respond to incentives.
and the law of demand.
MKT-3.A.3
b. Explain (using graphs
as appropriate) the Individuals often respond to incentives, such
as those presented by prices, but also face
relationship between price
constraints, such as income, time, and legal
and quantity demanded
and regulatory frameworks.
and how buyers
respond to incentives MKT-3.A.4
and constraints. The law of demand suggests that a change in the
own-price causes a change in quantity demanded
in the opposite direction and a movement along a
demand (marginal benefit) curve.
MKT-3.A.5
The conceptual relationship between price
and quantity stated by the law of demand leads
to downward-sloping demand curves explained
by the income effect and substitution effect
and/or by diminishing marginal utility.
MKT-3.A.6
The market demand curve (schedule) is derived
from the summation of individual demand
curves (schedules).

UNIT
Supply and Demand
2
MKT-3.B MKT-3.B.1
Explain (using graphs as Changes in the determinants of consumer
appropriate) buyers’ demand can cause the demand curve to shift.
responses to changes in
incentives and constraints.

UNIT
2 Supply and Demand
SUGGESTED SKILL
Graphing and
TOPIC 2.2
Supply
Visuals
4.A
Draw an accurately
model or market.
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Supply &
Markets—Lesson: A
from Microeconomics
and Macroeconomics
MKT-3.C MKT-3.C.1
a. Define (using graphs A change in own-price causes a change in
as appropriate) the law quantity supplied in the same direction and
of supply. a movement along a supply curve.
b. Explain (using graphs MKT-3.C.2
as appropriate) the The market supply curve (schedule) is derived
relationship between price from the summation of individual supply
and quantity supplied. curves (schedules). The market supply curve
is upward-sloping.
MKT-3.D MKT-3.D.1
Explain (using graphs as Changes in the determinants of supply can
appropriate) producers’ cause the supply curve to shift.
(sellers’) responses
to changes in incentives
and technology.

UNIT
Supply and Demand
2
Manipulation
Price Elasticity 3.C

Determine the effect(s) of
a change in an economic
of Demand situation using quantitative

MKT-3

MKT-3.E MKT-3.E.1
a. Define measures Economists use the concept of elasticity
of elasticity. to measure the magnitude of percentage
b. Explain (using graphs changes in quantity owing to any given
where appropriate) changes in the own-price, income, and prices
measures of elasticity and of related goods.
the impact of a given price MKT-3.E.2
change on total revenue Price elasticity of demand is measured by the
or total expenditure. percentage change in quantity demanded
c. Calculate (using data divided by the percentage change in price or
from a graph or a table as the responsiveness of the quantity demanded
appropriate) measures to changes in price. Elasticity varies along
of elasticity. a linear demand curve, meaning slope is
not elasticity.

UNIT
2 Supply and Demand

MKT-3.E MKT-3.E.3
a. Define measures Ranges of values of elasticity of demand are
of elasticity. described as elastic or inelastic with the
b. Explain (using graphs separating benchmark being a magnitude of 1,
where appropriate) where the change in the price and the change
measures of elasticity and in the quantity demanded are proportional.
the impact of a given price a. When the magnitude of the value of
change on total revenue elasticity is greater than 1, the demand is
or total expenditure. described as being elastic with respect to
c. Calculate (using data that price in the range of the given change.
from a graph or a table as b. When the magnitude of the value of
appropriate) measures elasticity is less than 1, the demand is
of elasticity. described as being inelastic with respect to
that price in the range of the given change.
c. When the magnitude of the value of elasticity
is equal to 1, the demand is described as
being unit elastic with respect to that price in
the range of the given change.
MKT-3.E.4
The price elasticity of demand depends
on certain factors such as the availability
of substitutes.
MKT-3.E.5
The impact of a given price change on total
revenue or total expenditure will depend
on whether demand is elastic, inelastic, or
unit elastic.

UNIT
Supply and Demand
2
Manipulation
Price Elasticity 3.C

of Supply situation using quantitative

MKT-3

MKT-3.E MKT-3.E.6
a. Define measures Price elasticity of supply is measured by
of elasticity. the percentage change in quantity supplied
b. Explain (using graphs divided by the percentage change in price,
where appropriate) or the responsiveness of the quantity supplied
measures of elasticity and to changes in price.
the impact of a given price MKT-3.E.7
change on total revenue or Ranges of values of elasticity of supply are
total expenditure. described as elastic or inelastic with the
c. Calculate (using data separating benchmark being a magnitude of 1,
from a graph or a table as where the change in the price and the change
appropriate) measures in the quantity supplied are proportional.
of elasticity. a. When the magnitude of the value of
elasticity is greater than 1, the supply is
described as being elastic with respect to
b. When the magnitude of the value of
elasticity is less than 1, the supply is
described as being inelastic with respect to
c. When the magnitude of the value of elasticity
is equal to 1, the supply is described as
being unit elastic with respect to that price in
the range of the given change.
MKT-3.E.8
The price elasticity of supply depends
on certain factors such as the price of
alternative inputs.

UNIT
2 Supply and Demand
SUGGESTED SKILL
Manipulation
TOPIC 2.5
3.C
Other Elasticities
situation using quantitative
MKT-3

MKT-3.E MKT-3.E.9
a. Define measures Elasticity can be measured for any determinant
of elasticity. of demand or supply, not just the price.
b. Explain (using graphs MKT-3.E.10
where appropriate) Income elasticity of demand is measured
measures of elasticity and by the percentage change in the quantity
the impact of a given price demanded divided by the percentage change
change on total revenue in consumers’ income. Economists use the
or total expenditure. income elasticity of demand to determine
c. Calculate (using data whether a good is normal or inferior.
from a graph or a table MKT-3.E.11
as appropriate) measures Cross-price elasticity of demand is measured
of elasticity. by the percentage change in the quantity
demanded of one good divided by the
percentage change in the price of another
good. Economists use the cross-price
elasticity of demand to determine whether
goods are substitutes, complements,
or not related.

UNIT
Supply and Demand
2
Interpretation
Market Equilibrium 2.A

Using economic concepts,
principles, or models,
and Consumer and explain how a specific

economic outcome occurs
or what action should be
Producer Surplus taken in order to achieve a

specific economic outcome.
MKT-4
Although equilibria are stable, an economy can move from one equilibrium to
another if market conditions change.

MKT-4.A MKT-4.A.1
a. Define (using graphs The supply-demand model is a tool for
as appropriate) understanding what factors influence prices and
market equilibrium, quantities and why prices and quantities might
consumer surplus, and differ across markets or change over time.
producer surplus. MKT-4.A.2
b. Explain (using graphs In a perfectly competitive market, equilibrium is
as appropriate) how achieved (and markets clear with no shortages
equilibrium price, quantity, or surpluses) when the price of a good or
consumer surplus, service brings the quantity supplied and
and producer surplus quantity demanded into balance, in the sense
for a good or service that buyers wish to purchase the same quantity
are determined. that sellers wish to provide.
c. Calculate (using data MKT-4.A.3
from a graph or table Equilibrium price provides information
as appropriate) areas to economic decision-makers to guide
of consumer surplus resource allocation.
and producer surplus
MKT-4.A.4
at equilibrium.
Economists use consumer surplus and
producer surplus to measure the benefits
markets create to buyers and sellers and
understand market efficiency.
MKT-4.A.5
Market equilibrium maximizes total economic
surplus in the absence of market failures,
meaning that perfectly competitive markets
are efficient.

UNIT
2 Supply and Demand
SUGGESTED SKILL
Manipulation
TOPIC 2.7
3.A
Determine the outcome Market Disequilibrium
and Changes in
of an economic situation
using economic concepts,
Equilibrium
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Supply &
Markets—Lesson: A
Although equilibria are stable, an economy can move from one equilibrium to
from Microeconomics
another if market conditions change.
and Macroeconomics

MKT-4.B MKT-4.B.1
a. Define a surplus Whenever markets experience imbalances—
and shortage. creating disequilibrium prices and quantities,
b. Explain (using graphs surpluses, and shortages—market forces drive
where appropriate) how price and quantity toward equilibrium.
changes in underlying MKT-4.B.2
conditions and shocks Factors that shift the market demand and
to a competitive market market supply curves cause price, quantity,
can alter price, quantity, consumer surplus, producer surplus, and
consumer surplus, and total economic surplus (within that market) to
producer surplus. change. The impact of the change depends on
c. Calculate (using data the price elasticities of demand and supply.
from a graph or table as
appropriate) changes
in price, quantity,
consumer surplus, and
producer surplus in
response to changes
in market conditions or
market disequilibrium.

UNIT
Supply and Demand
2
Graphing and
The Effects of
Visuals
4.C
Demonstrate the effect of
Government a change in an economic

situation on an accurately
labeled graph or visual.
Intervention in Markets
POL-1
Government policies influence consumer and producer behavior and therefore
affect market outcomes.

POL-1.A POL-1.A.1
a. Define forms of Some government policies, such as price
government price and floors, price ceilings, and other forms of price
quantity intervention. and quantity regulation, affect incentives and
b. Explain (using graphs outcomes in all market structures.
where appropriate) how POL-1.A.2
government policies alter Governments use taxes and subsidies to
consumer and producer change incentives in ways that influence
behaviors that influence consumer and producer behavior, shifting the
incentives and therefore supply and demand curves accordingly.
affect outcomes. POL-1.A.3
c. Calculate (using data from Taxes and subsidies affect government
a graph or table where revenues or costs.
appropriate) changes in
POL-1.A.4
market outcomes resulting
from government policies. Government intervention in a market producing
the efficient quantity through taxes, subsidies,
price controls, or quantity controls can only
decrease allocative efficiency.
POL-1.A.5
Deadweight loss represents the losses to
buyers and sellers as a result of government
intervention in an efficient market.
POL-1.A.6
The incidence of taxes and subsidies imposed on
goods traded in perfectly competitive markets
depends on the elasticity of supply and demand.

UNIT
2 Supply and Demand
SUGGESTED SKILL
Graphing and
TOPIC 2.9
International Trade
Visuals
4.C
and Public Policy
AVAILABLE RESOURCES
§§ Classroom Resources >
w International
Economics and the
AP Microeconomics
Course ENDURING UNDERSTANDING
w International POL-1
Economics Government policies influence consumer and producer behavior and therefore
affect market outcomes.

POL-1.B POL-1.B.1
a. Define tariffs and quotas. Equilibria in competitive markets may be
b. Explain (using graphs altered by the decision to open an economy
where appropriate) how to trade with other countries; equilibrium price
markets are affected by can be higher or lower than under autarky, and
public policy related to the gap between domestic supply and demand
is filled by trade. Opening an economy to trade
international trade.
with other countries affects consumer surplus,
c. Calculate (using data producer surplus, and total economic surplus.
POL-1.B.2
appropriate) changes in
market outcomes resulting Tariffs, which governments sometimes use to
from public policy related influence international trade, affect domestic
to international trade. price, quantity, government revenue, and
consumer surplus and total economic surplus.
POL-1.B.3
Quotas can be used to alter quantities
produced and therefore affect price, consumer
surplus, and total economic surplus.
X Exclusion:

The graphing of quotas is beyond the scope of
the course and the AP Exam, but understanding
how quotas affect quantities produced is within
the scope.

AP MICROECONOMICS
UNIT 3
Production,
Cost, and
the Perfect
Competition
Model
22–25%
AP EXAM WEIGHTING
~11–13
CLASS PERIODS

this unit.

§§ Short
§§ Short

UNIT
Production, Cost,
and the Perfect
Competition Model
BIG IDEA 2 Unit 3 focuses on firm behavior and culminates with an introduction to the perfect
Costs, Benefits, and competition model, which will form a basis of comparison for other market structures in the
Marginal Analysis CBA next unit. This unit builds on the idea of supply, which was introduced in the previous unit, and
§§ How do businesses use explores in more detail what drives the decisions that firms make. Thinking like a firm may be
marginal analysis to challenging for students, who are more used to acting as consumers in their everyday lives.
make decisions? Drawing connections to students’ own experiences and carrying out classroom simulations
can help bring these concepts to life. Reminding students of the ways in which the behavior
BIG IDEA 3 of firms is consistent with the ideas of cost-benefit analysis and marginal decision-making
Production Choices addressed in the first unit of the course may also be helpful in elucidating these concepts.
and Behavior PRD
§§ What drives producers’ Building Course Skills Preparing for the AP Exam
decision making?
1.A 1.C 1.D 2.A 4.A The perfect competition model is
§§ How can a market be
In this unit, students will be expected to foundational to the study of market
perfectly competitive?
describe the production function, the costs structures in this course and is frequently
of production, and firms’ profit-maximizing tested on the AP Exam. It’s important
behavior. Students should be able to to ground students in the conceptual
represent these concepts graphically and underpinnings of perfect competition,
numerically. It is important to devote including the concept of efficiency and
sufficient time to introducing new vocabulary production in both the short run and the long
to students and may be helpful for students run. Students will benefit from having multiple
to create a vocabulary notebook. Since opportunities to practice drawing and
grasping the behavior of firms is not always interpreting graphs that represent perfect
intuitive for students, consider beginning this competition; past AP Exams may be helpful in
unit by carrying out a factory simulation in this exercise. If students are able to grasp the
the classroom and having students graph the concepts behind perfect competition and
data generated and interpret the outcomes how it’s graphically represented, they will be
of the simulation. It helps to debrief the better able to understand imperfect market
simulation during and immediately following structures in the next unit.
the activity to clarify misconceptions Questions on the AP Exam that cover long-run
and deepen students’ understanding of production costs are often challenging for
relevant concepts. Students should have students. It may be helpful to provide students
additional opportunities to practice graphing, with opportunities to practice identifying and
interpreting given graphs, and doing explaining given situations to reinforce their
numerical problems in the context of the understanding of long-run production. Keep in
content covered in this unit. Proper graphing mind, though, that while this is a difficult topic
habits should continue to be reinforced for students, it does not comprise a significant
throughout this unit and the entire course. portion of the AP Exam.

UNIT
3 Production, Cost, and the Perfect Competition Model
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
3.1 The Production Function 1.A Describe economic concepts, principles,

or models.
3.2 Short-Run Production 4.A Draw an accurately labeled graph or visual to

PRD-1
Costs represent an economic model or market.
3.3 Long-Run Production 1.D Describe the similarities, differences, and

Costs limitations of economic concepts, principles,
or models.
3.4 Types of Profit 1.C Identify an economic concept, principle,

or model using quantitative data or calculations.
CBA-2
3.5 Profit Maximization 2.A Using economic concepts, principles, or

models, explain how a specific economic outcome
occurs or what action should be taken in order to
achieve a specific economic outcome.
3.6 Firms’ Short-Run 2.A Using economic concepts, principles, or

PRD-2
Decisions to Produce and models, explain how a specific economic outcome

Long-Run Decisions to occurs, or what action should be taken in order to
Enter or Exit a Market achieve a specific economic outcome.
PRD-3
3.7 Perfect Competition 4.A Draw an accurately labeled graph or visual to



UNIT
Production, Cost, and the Perfect Competition Model
3

Carry out a factory simulation in which students take on the role of producers in a firm.
Begin the simulation with a few fixed capital resources and no workers. Then add workers
one at a time and record production data as students seek to produce additional units of
a good (e.g., paper links). Connect the concepts of total product, marginal product, and
average product to their results when debriefing the experience.
2 3.2 Think-Pair-Share
Provide students with a list of formulas for short-run production costs. Include formulas
that show total, average, and marginal costs. Some formulas on the list should be correct
and some should be incorrect. Students should then determine which are or are not
correct and explain why to a partner.
3 3.4 Real-World Examples

The difference between accounting profit and economic profit is often difficult for
students to understand, so it can be helpful to solidify students’ understanding by using
concrete examples. You can provide students with the salary and costs associated with
a particular job and discuss whether that person makes accounting profit. Then discuss
what implicit costs are and whether that person makes economic profit.
Unit Planning Notes


UNIT
SUGGESTED SKILL
Principles and
TOPIC 3.1
The Production
Models
1.A
Describe economic
or models. Function
PRD-1
Firms’ production and cost constraints over different input and output levels shape
optimal decisions in the short run and long run.

PRD-1.A PRD-1.A.1
a. Define (using graphs The production function explains the
where appropriate) key relationship between inputs and outputs both
terms and concepts in the short run and the long run.
relating to production PRD-1.A.2
and cost. Marginal product and average product change
b. Explain (using graphs as input usage changes, and hence, total
where appropriate) how product changes.
production and cost are
PRD-1.A.3
related in the short run
Diminishing marginal returns occur as the
and long run.
firm employs more of one input, holding other
c. Calculate (using data inputs constant, to produce a product (output)
from a graph or table as in the short run.
appropriate) the various
measures of productivity
and short-run and
long-run costs.

UNIT
3
Graphing and
Short-Run
Visuals
4.A
Draw an accurately
Production Costs labeled graph or visual to

model or market.
PRD-1

PRD-1.A PRD-1.A.4
a. Define (using graphs Fixed costs and variable costs determine the
where appropriate) key total cost.
terms and concepts PRD-1.A.5
relating to production Marginal cost, average (fixed, variable, and
and cost. total) cost, total cost, and total variable cost
b. Explain (using graphs change as total output changes, but total fixed
where appropriate) how cost remains constant at all output levels,
production and cost are including zero output.
related in the short run PRD-1.A.6
and long run.
Production functions with diminishing marginal
c. Calculate (using data returns yield an upward-sloping marginal
from a graph or table as cost curve.
PRD-1.A.7
measures of productivity
and short-run and Specialization and the division of labor reduce
long-run costs. marginal costs for firms.
PRD-1.A.8
Cost curves can shift in response to changes
in input costs and productivity.

UNIT
SUGGESTED SKILL
Principles and
TOPIC 3.3
Long-Run
Models
1.D
differences, and limitations
Production Costs
PRD-1

PRD-1.A PRD-1.A.9
a. Define (using graphs In the long run, firms can adjust all their inputs,
where appropriate) key and as a result, all costs become variable.
terms and concepts PRD-1.A.10
relating to production The relationship between inputs and outputs
and cost. in the long run is described by the scale
b. Explain (using graphs of production—increasing, decreasing, or
where appropriate) how constant returns to scale.
production and cost are
PRD-1.A.11
related in the short run
The long-run average total cost is characterized
and long run.
by economies of scale, diseconomies of scale,
c. Calculate (using data or constant returns to scale (efficient scale).
PRD-1.A.12
measures of productivity The minimum efficient scale plays a role in
and short-run and determining the concentration of firms in a
long-run costs. market and the market structure.

UNIT
3
Principles and
Types of Profit
Models
1.C
concept, principle, or model
using quantitative data
or calculations.
CBA-2
To determine the optimal level at which to pursue an activity whose total benefits
exceed total cost, rational economic agents compare marginal benefits and
marginal costs.

CBA-2.C CBA-2.C.1
a. Define the different types Firms respond to economic profit (loss) rather
of profit. than accounting profit.
b. Explain how firms respond CBA-2.C.2
to profit opportunities. Accounting profit fails to account for implicit
c. Calculate a firm’s profit costs (such as cost of financial capital,
or loss. compensation for risk, or an entrepreneur’s
time), which, if fully compensated, result in
normal profit.

UNIT
SUGGESTED SKILL
Interpretation
TOPIC 3.5
2.A
Profit Maximization
explain how a specific
economic outcome occurs,
or what action should be
taken in order to achieve a

AVAILABLE RESOURCE
Mastering Economic
Thinking Skills— ENDURING UNDERSTANDING
Marginal Thinking:
CBA-2
Key Concepts and
Questions To determine the optimal level at which to pursue an activity whose total benefits
exceed total cost, rational economic agents compare marginal benefits and
marginal costs.

CBA-2.D CBA-2.D.1
a. Define (using graphs or Firms are assumed to produce output to
data as appropriate) the maximize their profits by comparing marginal
profit-maximizing rule. revenue and marginal cost.
b. Explain (using a graph or
data as appropriate) the
profit-maximizing level
of production.

UNIT
3
Interpretation
Firms’ Short-Run Decisions 2.A

to Produce and Long-Run principles, or models,

economic outcome occurs,
Decisions to Enter or what action should be

taken in order to achieve a
or Exit a Market specific economic outcome.
PRD-2
Firms’ short-run decisions to produce output, and long-run decisions to enter or
exit a market, are based on profitability.

PRD-2.A PRD-2.A.1
Explain (using graphs or In the short run, firms decide to operate
data where appropriate) (i.e., produce positive output) or shut down
firms’ short-run decisions (i.e., produce zero output) by comparing total
to produce positive revenue to total variable cost or price to
output levels, or long-run average variable cost (AVC).
decisions to enter or exit PRD-2.A.2
a market in response to
In the absence of barriers to entry or exit, in
profit-making opportunities.
the long run (i.e., once factors that are fixed
in the short run become variable), firms enter
a market in which there are profit-making
opportunities and exit a market when they
anticipate economic losses.

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 3.7
Perfect Competition
Visuals
4.A
Draw an accurately
model or market.
AVAILABLE RESOURCE
Markets—Product and
Factor Markets
PRD-3
Even with a common goal of profit-maximization, market structure constrains and
influences prices, output, and efficiency.

PRD-3.A PRD-3.A.1
a. Define (using graphs A perfectly competitive market is efficient.
as appropriate) the Firms in perfectly competitive markets face no
characteristics of barriers to entry and have no market power.
perfectly competitive PRD-3.A.2
markets and efficiency. In perfectly competitive markets, prices
b. Explain (using graphs communicate to consumers and producers
where appropriate) the magnitude of others’ marginal costs
equilibrium and firm of production and marginal benefits of
decision making in consumption and provide incentives to act
perfectly competitive on that information (i.e., price equals marginal
markets and how prices cost in an efficient market).
in perfectly competitive PRD-3.A.3
markets lead to In perfectly competitive markets, firms can sell
efficient outcomes. all their outputs at a constant price determined
c. Calculate (using data by the market.
PRD-3.A.4
appropriate) economic
At a competitive market equilibrium, firms are
profit (loss) in perfectly
price takers and select output to maximize
competitive markets.
profit by producing the level of output where
the marginal cost equals marginal revenue
(at the price).

UNIT
3
PRD-3.A PRD-3.A.5
a. Define (using graphs At a competitive market equilibrium, the
as appropriate) the price of a product equals both the private
characteristics of marginal benefit received by the last
perfectly competitive unit consumed and the private marginal
markets and efficiency. cost incurred to produce the last unit, thus
achieving allocative efficiency.
where appropriate) PRD-3.A.6
equilibrium and firm In a short-run competitive equilibrium, price
decision making in can either be above or below its long-run
perfectly competitive competitive level resulting in profits or
markets and how prices losses, motivating entry or exit of firms
in perfectly competitive and moving prices and quantities toward
markets lead to long-run equilibrium.
efficient outcomes. PRD-3.A.7
c. Calculate (using data In a long-run perfectly competitive equilibrium,
from a graph or table as productive efficiency implies all operating
appropriate) economic firms produce at efficient scale, price equals
profit (loss) in perfectly marginal cost and minimum average total cost,
competitive markets. and firms earn zero economic profit.
PRD-3.A.8
Firms may be in a constant cost, increasing
cost, or decreasing cost industry. Long-run
prices depend on the portion of the long-run
cost curves on which firms operate.
PRD-3.A.9
A perfectly competitive market in
long-run equilibrium is allocatively and
productively efficient.

THIS PAGE IS INTENTIONALLY LEFT BLANK.
AP MICROECONOMICS
UNIT 4
Imperfect
Competition
15–22%
AP EXAM WEIGHTING
~8–10
CLASS PERIODS

this unit.

§§ Short
§§ Long

UNIT
Imperfect
Competition
BIG IDEA 3 In the real world, firms rarely operate in perfectly competitive markets. In this unit, students
Production Choices and will encounter the ways in which imperfectly competitive markets depart from the model
Behavior PRD of perfect competition introduced in Unit 3. Students will continue to build on their
§§ What drives producers’ understanding of what it means for a market to be efficient or inefficient as they consider the
decision making? welfare implications of imperfect markets. In the context of learning about oligopoly behavior,
§§ How are imperfectly
students will be introduced to the field of game theory as an approach to studying strategic
competitive
decision making.
markets inefficient?
Building Course Skills each of these models, it is also important
to stress the similarities. For example, a
1.D 2.C 4.B 4.C common characteristic of all imperfect
In this unit, students should be able to product market graphs is that the marginal
describe the similarities and differences revenue curve lies below the demand curve.
between market structures. To help students Regardless of the market structure, students
develop this skill, consider first approaching should practice neatly drawing each graph
the topic by using real-world examples and and labeling it appropriately until they can
having students describe distinguishing do so flawlessly.
characteristics of those examples. Using
graphic organizers such as Venn diagrams Preparing for the AP Exam
might also be helpful to keep track of Game theory is an important concept in the
similarities and differences. field of economics and is a challenge for
Graphing continues to be essential in this some students on both the multiple-choice
unit, and graphing each market structure can and free-response sections of the
be difficult for some students. Be deliberate AP Exam. Students should have sufficient
in modeling the differences between a opportunities for guided practice interpreting
license/patent monopoly and a natural payoff matrices, identifying dominant
monopoly, as well as a monopolistically strategies and Nash equilibria, and redrawing
competitive firm both in the short-run (with payoff matrices after given changes.
profits or losses) and at long-run equilibrium. Answering past free-response questions on
While it is critical that students understand the topic (e.g., 2013 AP Exam Question #2)
the differences between the graphs in is a good way to practice.

UNIT
4 Imperfect Competition
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
4.1 Introduction to Imperfectly 1.D Describe the similarities, differences, and

Competitive Markets limitations of economic concepts, principles,
or models.
4.2 Monopoly 4.B Demonstrate your understanding of a specific

economic situation on an accurately labeled
graph or visual.
PRD-3
4.3 Price Discrimination 4.C Demonstrate the effect of a change in an

graph or visual.
4.4 Monopolistic Competition 4.B Demonstrate your understanding of a specific

graph or visual.
4.5 Oligopoly and 2.C Interpret a specific economic outcome using

Game Theory quantitative data or calculations.


UNIT
Imperfect Competition
4
1 4.1 Response Groups

Divide students into four groups representing a monopoly, an oligopoly, monopolistic
competition, and perfect competition. Each group should come up with real-world
examples that represent its assigned market and use those examples to describe
the distinguishing characteristics of its market type. After working in small groups, a
presenter will share each group’s findings with the class.
2 4.2 Socratic Seminar

Following instruction on the characteristics of a monopoly, provide students with
several articles containing varied analysis of an antitrust case. Ask students to
discuss and evaluate whether the situation meets the criteria of a monopoly, using
economic vocabulary and referencing the articles.
3 4.5 Systematic and Explicit Instruction

Demonstrate to students how to identify a dominant strategy and Nash equilibrium in
a 2 × 2 payoff matrix. Then provide students with sample problems to work through
on their own.
Unit Planning Notes


UNIT
SUGGESTED SKILL
Principles and
TOPIC 4.1
Introduction
Models
1.D
differences, and limitations
to Imperfectly
Competitive Markets
PRD-3

PRD-3.B PRD-3.B.1
a. Define (using graphs Imperfectly competitive markets include
where appropriate) monopoly, oligopoly, and monopolistic
the characteristics of competition in product markets and
imperfectly competitive monopsony in factor markets.
markets and inefficiency. PRD-3.B.2
In imperfectly competitive output markets and
assuming all else is constant, a firm must lower
price to sell additional units.
PRD-3.B.3
In imperfectly competitive markets, consumers
and producers respond to prices that are
above the marginal costs of production
and/or marginal benefits of consumption
(i.e., price is greater than marginal cost in an
inefficient market).
PRD-3.B.4
Incentives to enter an industry may be
mitigated by barriers to entry. Barriers to
entry—such as high fixed/start-up costs, legal
barriers to entry, and exclusive ownership
of key resources—can sustain imperfectly
competitive market structures.

UNIT
4
Graphing and
Monopoly
Visuals
4.B
Demonstrate your
understanding of a specific
economic situation on
an accurately labeled
graph or visual.
PRD-3

PRD-3.B PRD-3.B.5
b. Explain (using graphs A monopoly exists because of barriers to entry.
where appropriate) PRD-3.B.6
equilibrium, firm decision
In a monopoly, equilibrium (profit-maximizing)
making, consumer surplus, quantity is determined by equating marginal
producer surplus, profit revenue (MR) to marginal cost (MC). The price
(loss), and deadweight charged is greater than the marginal cost.
loss in imperfectly
PRD-3.B.7
competitive markets and
why prices in imperfectly In a natural monopoly, long-run economies
competitive markets of scale for a single firm exist throughout the
cannot be relied on to entire effective demand of its product.
coordinate the actions
of all possible market
participants and can lead
to inefficient outputs.
c. Calculate (using data
from a graph or table
as appropriate) areas
of consumer surplus,
producer surplus, profit
(loss), and deadweight
loss in imperfectly

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 4.3
Price Discrimination
Visuals
4.C
PRD-3

PRD-3.B PRD-3.B.8
b. Explain (using graphs A firm with market power can engage in
where appropriate) price discrimination to increase its profits or
equilibrium, firm decision capture additional consumer surplus under
making, consumer surplus, certain conditions.
producer surplus, profit PRD-3.B.9
(loss), and deadweight With perfect price discrimination, a monopolist
loss in imperfectly produces the quantity where price equals
competitive markets and marginal cost (just as a competitive market
why prices in imperfectly would) but extracts all economic surplus
competitive markets associated with its product and eliminates all
cannot be relied on to deadweight loss.
loss in imperfectly

UNIT
4
Graphing and
Monopolistic
Visuals
4.B
Demonstrate your
Competition understanding of a specific

economic situation on
an accurately labeled
graph or visual.
PRD-3

PRD-3.B PRD-3.B.10
b. Explain (using graphs In a market with monopolistic competition,
where appropriate) firms producing differentiated products may
equilibrium, firm decision earn positive, negative, or zero economic profit
making, consumer surplus, in the short run. Firms typically use advertising
producer surplus, profit as a means of differentiating their product. Free
(loss), and deadweight entry and exit drive profits to zero in the long
loss in imperfectly run. The output level, however, is smaller than
competitive markets and the output level needed to minimize average
why prices in imperfectly total costs, creating excess capacity. The
price is greater than marginal cost, creating
competitive markets
allocative inefficiency.
cannot be relied on to
loss in imperfectly

UNIT
SUGGESTED SKILL
Interpretation
TOPIC 4.5
2.C
economic outcome
Oligopoly and
using quantitative
data or calculations. Game Theory
AVAILABLE RESOURCES
w Mastering
Economic Thinking
Skills—Focusing on
Marginal Thinking ENDURING UNDERSTANDING
and Game Theory PRD-3
in Microeconomics
w Mastering influences prices, output, and efficiency.
Economic Thinking
Skills—Teaching
About Game Theory
PRD-3.C PRD-3.C.1
a. Define (using tables as An oligopoly is an inefficient market structure
appropriate) key terms, with high barriers to entry, where there are few
strategies, and concepts firms acting interdependently.
relating to oligopolies and PRD-3.C.2
simple games. Firms in an oligopoly have an incentive to
b. Explain (using tables as collude and form cartels.
appropriate) strategies
PRD-3.C.3
and equilibria in
A game is a situation in which a number of
simple games and the
individuals take actions, and the payoff for
connections to theoretical
each individual depends directly on both the
behaviors in various
individual’s own choice and the choices of
oligopoly market and
others.
non-market settings.
PRD-3.C.4
c. Calculate (using tables as
appropriate) the incentive A strategy is a complete plan of actions for
sufficient to alter a player’s playing a game; the normal form model of a
dominant strategy. game shows the payoffs that result from each
collection of strategies (one for each player).
PRD-3.C.5
A player has a dominant strategy when the
payoff to a particular action is always higher
independent of the action taken by the other
player. Dominant strategies can be eliminated
from each player’s action set and can
sometimes lead to an equilibrium outcome (see
Nash equilibrium on next page).

UNIT
4
PRD-3.C PRD-3.C.6
a. Define (using tables as A Nash equilibrium is a condition describing the
appropriate) key terms, set of actions in which no player can increase
strategies, and concepts his or her payoff by unilaterally taking another
relating to oligopolies and action, given the other players’ actions.
simple games. X Exclusion:
b. Explain (using tables as Dominant strategies and Nash equilibrium with
appropriate) strategies more than two players or more than two actions
and equilibria in per player, mixed-strategy equilibria, extensive
simple games and the form games, and normal form games with more
than two players or more than two actions per
connections to theoretical player are beyond the scope of the course and
behaviors in various the AP Exam.
oligopoly market and
non-market settings. PRD-3.C.7
c. Calculate (using tables as Oligopolists have difficulty achieving the
appropriate) the incentive monopoly outcome for reasons similar to
sufficient to alter a player’s those that prevent players from achieving
dominant strategy. a cooperative outcome in the Prisoner’s
Dilemma; nevertheless, prices are generally
higher and quantities lower with oligopoly (or
duopoly) than with perfect competition.

THIS PAGE IS INTENTIONALLY LEFT BLANK.
AP MICROECONOMICS
UNIT 5
Factor
Markets
10–13%
AP EXAM WEIGHTING
~6–8
CLASS PERIODS

this unit.

Free-response: 1 question
§§ Short

UNIT
Factor Markets
BIG IDEA 3 By this point in the course, students are familiar with how product markets operate and what
Production Choices and drives firm decision making. In this unit, students will apply many of the concepts they learned
Behavior PRD previously but now in the context of factor markets. Like with product markets, the laws
§§ How are prices for of supply and demand apply to factor markets with an upward-sloping supply curve and a
resources determined? downward-sloping demand curve. In factor markets, firms hire additional resources up to the
§§ How do firms use
point at which the resource’s marginal revenue product is equal to its marginal resource cost.
resource prices to
This decision is another application of the idea first introduced in Unit 1 of making an optimal
make decisions? choice by equating marginal benefit with marginal cost and firms’ decisions to maximize
profits where marginal revenue equals marginal cost.
Building Course Skills Preparing for the AP Exam

1.A 2.A 2.C 3.B Factor markets are one of the biggest
In this unit, students should be able to challenge areas for students on the AP Exam.
describe the principles of factor markets so There can be a tendency to rush through
that they can apply that understanding in this unit because it only accounts for a small
context. Devote sufficient time to introducing percentage of the multiple-choice section
students to new concepts and vocabulary of the AP Exam and is near the end of the
while also connecting key terms and course. Sufficient time should be devoted
concepts to items addressed previously in to introducing the concepts and providing
the course. opportunities for student practice to properly
prepare students for factor market questions
Students should also be able to represent on the exam. It may also be helpful to teach
factor markets graphically in this unit. It helps factor markets as another application of
to explain the basis of each model and the concepts such as supply and demand and
underlying assumptions so that students marginal analysis so that students can see
can create properly labeled graphs to the connections to previous content and
represent economic situations and interpret the ways in which factor markets differ. For
given graphs. example, cost minimization by firms works
Students will continue to build their like utility maximization by consumers when
quantitative skills by solving problems you equalize the marginal product per dollar
in which they interpret how firms should for each input.
allocate inputs to minimize costs or maximize
profits. Once again, it’s important to spend
time conceptually grounding students in the
underlying concepts of these quantitative
problems and provide ample time for
numerical examples and practice.

UNIT
5 Factor Markets
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
5.1 Introduction to 1.A Describe economic concepts, principles,

Factor Markets or models.
5.2 Changes in Factor Demand 3.B Determine the effect(s) of one or more changes
and Factor Supply on other economic markets.
PRD-4
5.3 Profit-Maximizing Behavior 2.C Interpret a specific economic outcome using

in Perfectly Competitive quantitative data or calculations.
Factor Markets
5.4 Monopsonistic Markets 2.A Using economic concepts, principles, or models,

explain how a specific economic outcome occurs
or what action should be taken in order to achieve a


UNIT
Factor Markets
5
1 5.1 Activating Prior Knowledge

Refer students back to the simulation that was carried out in Topic 3.1 in which students
acted as producers in a firm to show total product, marginal product, and diminishing
marginal returns. Now introduce the price of the output being produced in order for
students to calculate the value of the marginal product, also called marginal revenue
product or factor demand.
2 5.2 Graph and Switch

Provide students with a series of scenarios that introduce changes in the determinants
of labor demand and labor supply. Have students graph each scenario and then switch
papers or whiteboards with a partner to review each other’s work.
3 5.3 Model Questions

After introducing students to the content covered in Topic 5.3, provide an opportunity
for students to practice answering previous free-response questions to reinforce their
learning (e.g., 2011 AP Exam Question #2, 2010 AP Exam Question #2).
Unit Planning Notes


UNIT
5 Factor Markets
SUGGESTED SKILL
Principles and
TOPIC 5.1
Introduction to
Models
1.A
Describe economic
or models. Factor Markets
PRD-4
Factor prices provide incentives and convey information to firms and factors
of production.

PRD-4.A PRD-4.A.1
a. Define (using graphs Factors of production (labor, capital, and land)
where appropriate) key respond to factor prices (wages, interest, and
terms and concepts rent), and employers’ (firms’) decision to hire is
relating to factor markets. based on the productivity of the factors, output
b. Explain (using graphs price, and cost of the factor.
where appropriate) the PRD-4.A.2
relationship between The quantity of labor demanded is negatively
factors of production, related to the wage rate, while the quantity
firms, and factor prices. of labor supplied is positively related to the
c. Calculate (using data from wage rate in a given labor market, other
a graph or table where things constant.
appropriate) the marginal
revenue product and
marginal resource cost.

UNIT
Factor Markets
5
Manipulation
Changes in Factor 3.B

one or more changes on
Demand and other economic markets.
Factor Supply
PRD-4
of production.

PRD-4.B PRD-4.B.1
Explain (using graphs Changes in the determinants of labor demand,
where appropriate) firms’ such as the output price and the productivity
and factors’ responses of the worker, cause the labor demand curve
to changes in incentives to shift.
and constraints. PRD-4.B.2
Changes in the determinants of labor supply
(such as immigration, education, working
conditions, age distribution, availability of
alternative options, preferences for leisure, and
cultural expectations) cause the labor supply
curve to shift.

UNIT
5 Factor Markets
SUGGESTED SKILL
Interpretation
TOPIC 5.3
2.C
economic outcome
Profit-Maximizing
using quantitative data or
calculations. Behavior in Perfectly
Competitive
AVAILABLE RESOURCES
Factor Markets
w Markets—Product
and Factor Markets Required Course Content
w Mastering Economic
Thinking Skills—
Marginal Thinking:
Key Concepts and
Questions
PRD-4
of production.

PRD-4.C PRD-4.C.1
a. Define (using graphs In a perfectly competitive labor market, the
as appropriate) the wage is set by the market and each firm hires
characteristics of the quantity of workers, where the marginal
perfectly competitive factor (resource) cost (wage) equals the
factor markets. marginal revenue product of labor. A typical
firm may be a perfect competitor in the labor
market even if it is an imperfect competitor in
where appropriate)
its output markets.
the profit-maximizing
behavior of firms buying PRD-4.C.2
labor (with other inputs A typical firm hires labor in a perfectly
fixed) in perfectly competitive labor market as long as the
competitive markets. marginal revenue product of labor is greater
c. Calculate (using data than the market wage.
from a graph or table PRD-4.C.3
where appropriate) To minimize costs or maximize profits, firms
measures representing allocate inputs such that the last dollar spent
the profit-maximizing on each input yields the same amount of
behavior of firms buying marginal product.
labor (with other inputs
fixed) in perfectly

UNIT
Factor Markets
5
PRD-4.C PRD-4.C.4
a. Define (using graphs Marginal revenue product of a factor of
as appropriate) the production is the change in total revenue
characteristics of divided by the change in that factor of
perfectly competitive production, which is also equal to the marginal
factor markets. physical product of that factor multiplied by the
marginal revenue (MRP = MP × MR). Firms in a
perfectly competitive output market will have
where appropriate)
marginal revenue product of labor that is equal
to the value of the marginal product of labor
behavior of firms buying
(VMPL = MPL × P) because marginal revenue
for each unit of output is equal to price.
fixed) in perfectly
where appropriate)
measures representing
behavior of firms buying
fixed) in perfectly

UNIT
5 Factor Markets
SUGGESTED SKILL
Interpretation
TOPIC 5.4
2.A
Monopsonistic
economic outcome
occurs or what action
Markets
should be taken in order
to achieve a specific
economic outcome.
PRD-4
of production.

PRD-4.D PRD-4.D.1
a. Define (using graphs In a monopsonistic labor market, a typical firm
as appropriate) the hires additional labor as long as the marginal
characteristics of revenue product is greater than the marginal
monopsonistic markets. factor (resource) cost (the wage of a new unit
b. Explain (using graphs of labor plus the wage increase given to all
existing labor).
where appropriate) the
profit-maximizing behavior PRD-4.D.2
of firms buying labor When a typical firm hires additional workers
(with other inputs fixed) in in a monopsonistic labor market, the marginal
monopsonistic markets. factor (resource) cost is greater than the supply
c. Calculate (using data from price of labor.
a graph or table where
appropriate) measures
representing the profit-
maximizing behavior of
firms buying labor (with
other inputs fixed) in
monopsonistic markets.


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UNIT

1 12–15% AP EXAM WEIGHTING ~9–11 CLASS PERIODS

AP Microeconomics Course and Exam Description Course Framework V.1 | 31

1 Basic Economic Concepts

Topic Suggested Skills ~9–11 CLASS PERIODS

1.1 Scarcity 1.A Describe economic concepts, principles,

Economic Systems limitations of economic concepts, principles,

1.3 Production 4.A Draw an accurately labeled graph or visual

1.4 Comparative Advantage 1.C Identify an economic concept, principle, or

1.5 Cost-Benefit Analysis 1.C Identify an economic concept, principle, or

Go to AP Classroom to assign the Personal Progress Check for Unit 1.

AP Microeconomics Course and Exam Description Course Framework V.1 | 32

Activity Topic Sample Activity

1 1.1 Real-World Examples

2 1.3 Graph and Switch

3 1.5 Authentic Tasks

4 1.6 Simulation and Debriefing

Unit Planning Notes

AP Microeconomics Course and Exam Description Course Framework V.1 | 33

1 Basic Economic Concepts

Required Course Content

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE

AP Microeconomics Course and Exam Description Course Framework V.1 | 34

and Economic Systems differences, and limitations

Required Course Content

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE

AP Microeconomics Course and Exam Description Course Framework V.1 | 35

1 Basic Economic Concepts

Required Course Content

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE

under various conditions. The PPC can shift due to changes in

AP Microeconomics Course and Exam Description Course Framework V.1 | 36

Advantage and Trade concept, principle, or

Required Course Content AVAILABLE RESOURCES

AP Microeconomics Course and Exam Description Course Framework V.1 | 37

1 Basic Economic Concepts

Required Course Content

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE

AP Microeconomics Course and Exam Description Course Framework V.1 | 38

Marginal Analysis and 2.C

Consumer Choice using quantitative

Required Course Content AVAILABLE RESOURCE

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE

continued on next page

AP Microeconomics Course and Exam Description Course Framework V.1 | 39

1 Basic Economic Concepts

LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE

AP Microeconomics Course and Exam Description Course Framework V.1 | 40

AP Microeconomics Course and Exam Description Course Framework V.1 | 41

Personal Progress Check 2

AP Microeconomics Course and Exam Description Course Framework V.1 | 42

2 20–25% AP EXAM WEIGHTING ~13–15 CLASS PERIODS

Supply and Demand

AP Microeconomics Course and Exam Description Course Framework V.1 | 43

2 Supply and Demand

Topic Suggested Skills ~13–15 CLASS PERIODS

2.1 Demand 4.A Draw an accurately labeled graph or visual to

2.2 Supply 4.A Draw an accurately labeled graph or visual to

2.3 Price Elasticity of Demand 3.C Determine the effect(s) of a change in an