AP MicroEconomics HIGH SCHOOL

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1 Planned Course of Study AP MicroEconomics HIGH SCHOOL NORTHWESTERN LEHIGH SCHOOL DISTRICT 6493 ROUTE 309 NEW TRIPOLI, PA 18066

2 NORTHWESTERN LEHIGH SCHOOL BOARD 2012 Darryl S. Schafer, President LeRoy Sorenson, Vice President Camille S. Bartlett, Secretary Willard G. Dellicker, Treasurer Christopher Ford Todd Hernandez Ronald L. Morrison Joseph J. Reiter Greg Sanders John E. Freund III, Esq., Solicitor ADMINISTRATION Dr. Mary Anne Wright, Superintendent Jennifer Holman, Assistant Superintendent Dr. Mark Scott, Director of Pupil Services Luann E. Matika, Director of Human Resources LeAnn M. Stitzel, Director of Curriculum Aileen Yadush, Secondary Principal Donald B. Allen, Assistant Secondary Principal Laurie Hoppes, Middle School Principal Amy Wahl, Middle School Assistant Principal Jill Berlet, Elementary Principal Marc Dobbs, Elementary Principal

3 TABLE OF CONTENTS Introduction and Level of Mastery 4 Description Course Outline 5

4 INTRODUCTION The AP MicroEconomics curriculum guide contains planned course formats for the Northwestern Lehigh School District. The content of this document describes the objectives, activities, assessments, content, time frame, and standard alignment that serve as a guide to the specific units of study offered in AP MicroEconomics, and is based on guidelines set forth by the College Board. The AP MicroEconomics curriculum guide is the product of much diligent work on the part of the following members of the Social Studies department who contributed during the school years: Paul Kleinert This document reflects their efforts to establish a well-defined and organized approach to teaching Social Studies in the Northwestern Lehigh School District. Approved by Northwestern Lehigh School District Board of Education 2012 LEVEL OF MASTERY DESCRIPTIONS Recognition (R) Application (A) Inference (I) Students will be able to recall concepts. Students will be able to apply ideas/skills to a curricular concept. Students will be able to evaluate and synthesize materials or concepts

5 AP Microeconomics Course Overview: This is a one semester ELECTIVE designed for those students planning on taking the Advanced Placement Exam in Microeconomics. Successful completion AP Macro is recommended but not required. This is a college level course and requires a major commitment of time and intellectual energy from the student. Successful completion of the Advanced Placement Examination may earn college credit, advanced placement or opt-out options at the university level. This course is highly recommended for those students planning on taking the AP Economics Examination in the spring and a firm commitment to take the Exam is expected. The course is broken into the following broad Units of Study. 1. Basic Concepts: students study the basic economic problem of scarcity and the necessity of choice and the inevitable opportunity costs. Basic trade-offs are addressed as well as a heavy emphasis on cost-benefit analysis. Models including Production Possibilities Frontier, Circular Flow Model, and Absolute and Comparative Advantage matrixes are used to demonstrate these concepts. 2. The Nature and Functions of Product Markets: students will study supply and demand models including elasticity, government involvement (price floors, ceilings and taxes), and consumer and producer surplus in perfectly competitively markets, imperfectly competitive markets as well as various trade scenarios. They will use marginal analysis to identify utility maximizing outcomes. 3. The Theory of the Firm: students will study the various short-run and long run costs of production for an individual firm. Emphasis is given to the relationship between curves and the profit maximizing rule of MC=MR. The course also takes an in-depth look at all market structures (pure competition, monopoly, oligopoly and monopolistic competition) with emphasis given to socially efficient, allocatively efficient and profit maximizing production points. 4. Factor Markets: student will apply supply and demand analysis to the resource markets with emphasis on the labor market. Derived demand is emphasized with components identified as price and marginal product. Marginal analysis is again emphasized when finding profit maximizing number of inputs by calculating the point where marginal revenue product = marginal factor cost. 5. Market Failures and Government Involvement: students study market shortcomings including externalities, public goods, common pool resources, and income distribution. An analysis of the trade-off that exists between efficiency and equity is examined. Marginal analysis is used to determine socially optimum price and quantities when following the MSC=MSB rule.

6 Course Textbook and Curricular Resources: Primary Curricular Resource: Morton, John S. and Rae Jean B. Goodman. Advanced Placement Economics: Teacher Resource Manual and Student Workbooks. New York: NCEE, 2003 o Notes: This is the resource used for the scope and sequence of the course. All student performance objectives are taken from this resource. Most activities from this series are assigned as either homework or in-class activities. While this resource serves as the primary source for curricular development, other resources cited in the following sections are used to adapt and enhance the NCEE recommendations. Primary Curricular Resource: (The Acorn Book) Economics: Microeconomics, Macroeconomics. Course Description. The College Board, 2006 o All Acorn topic outline content is identified at the beginning of each unit. Primary Textbook: o Mankiw, N. Gregory. Principles of Economics. 6 th ed. AP South-Western Cengage Learning, 2012 Notes: This is the main student text used for the course. The accompanying Study Guides, CD-ROM, website, and test bank are all used heavily. Resource Textbook: o McConnell, Campbell R. and Stanley L. Brue. Economics: Principles, Problems and Policies 16 th ed. New York: McGraw Hill, 2005 Notes: This text is mainly used as an instructor s resource but is used to supplement material on the Factor Market Unit. Resource Textbook: o Krugman, Paul and Robin Wells. Microeconomics. New York: Worth Publishers, 2005 o Krugman, Paul, Margaret Ray and David Anderson. Krugman s Economics for AP. New York: Worth Publishers, 2012 Frequently used news media: o The Economist o Wall Street Journal Notes: These texts are mainly used as an instructor s resource. o Business Week emphasis on the weekly Business Outlook. Notes: Current articles from these magazines are frequently used for in-class discussion purposes or for Message Board discussion on the class website. Frequently used websites: o Aplia is a web-based program that provides text specific practice sets and graded homework for each chapter assigned. Assigned problem sets test reading comprehension and require students to apply concepts. Every assigned problem set includes interactive

7 Java based graphs that require students to generate, manipulate, interpret and analyze graphs, charts and data to explain various concepts. Real time experiments and simulations allow students to apply concepts in an interactive and practical setting. o pleteindex.html Student site for the Mankiw textbook includes practice quizzes for each chapter that require graphing and chart analysis. o Aplia blog. Topical entries that require students to analyze and apply content to current issues. o Professor Mankiw s blog o Charles Wheelan provides analysis on a variety of topics that focuses on application on basic concepts. o Online textbook and lessons by AP guru Steven Reff.

8 Unit 1: The Basic Economic Problem Pennsylvania State Standards: A: Predict the long-term consequences of decisions made because of scarcity B: Evaluate the economic reasoning behind a choice. Evaluate effective allocation of resources for the production of goods and services C: Analyze the opportunity cost of decisions made by individuals, businesses, communities, and nations D: Predict how changes in incentives may affect the choices made by individuals, businesses, communities, and nations A: Evaluate the flow of goods and services in an international economy G: Evaluate various economic systems A: Evaluate the costs and benefits of government decisions to provide public goods and services A: Evaluate the comparative advantage of nations in the production of goods and services B: Assess the growth and impact of international trade around the world C: Evaluate the impact of multinational corporations and other non-government organizations D: Analyze how changes in transportation, communication networks, and technology affect economic interdependence around the world in the 21st century F: Assess the impact of entrepreneurs on the economy. 1. Scarcity, choice and opportunity cost 2. Production Possibilities Frontier 3. Comparative advantage, absolute advantage, specialization and trade 4. Economic systems 5. Property rights and the role of incentives 6. Marginal analysis Assignments, Assessments and Activities: Chapters 1-3 from Principles of Economics by N. Gregory Mankiw Select end of chapter questions from Principles of Economics by N. Gregory Mankiw Mankiw Study Guides for Chapters 1-3 Aplia Problem Sets for Chapter 1-3 Activities 1-8 from NCEE s Advanced Placement Economics Workbook Previous FRQ s used for review, homework and assessments: o 1999 FRQ #2, o From AP Macro Exam: 2003B #2, 2003 #3, 2004B #3 (all absolute/comparative advantage with some use of PPF) Chapter quizzes and Unit Exam upon completion of all assigned chapters. o Unit Exam includes 2-3 released FRQ s from past years. Basic Concept Application Project o Students must creatively apply the 10 Principles from Chapter 1 of Mankiw s Principles of Economics. Students will demonstrate understanding of all 10 Principles introduced in Chapter 1 of Principles of Economics by N. Gregory Mankiw. This is an open format assignment that allows the student to select any medium to demonstrate understanding (article application, power point presentation, website, video )

9 Student learning objectives: The student will Each principle will be given a score of 0-3 o 3=in-depth understanding o 2=good understanding o 1=limited understanding o 0=missing The Economic Way of Thinking 1. Define scarcity and opportunity cost. 2. Define the economic way of thinking. 3. Apply scarcity concepts to a variety of economic and non-economic situations. Scarcity, Opportunity Cost, and Production Possibilities Curves 1. Review the definition of opportunity cost. 2. Graph and interpret data. 3. Graph and distinguish among inverse, direct, and independent relationships. 4. Graph and distinguish between constant and variable relationships. 5. Identify the conditions that give rise to the economic problem of scarcity. 6. Identify the opportunity costs of various courses of action involving a hypothetical problem. 7. Construct production possibilities curves from sets of hypothetical data. 8. Apply the concept of opportunity cost to a production possibilities curve. 9. Analyze the significance of different locations on, above, and below a production possibilities curve. 10. Compare and contrast the effects of societal priorities on the slope, outer limits, and operating points of the production possibilities curve. 11. Apply scarcity concepts to a variety of economic and non-economic situations. Different Means of Organizing an Economy 1. Identify the conditions that give rise to the economic problem of scarcity. 2. Identify the opportunity costs of various courses of action involving a hypothetical problem. 3. Identify the three questions that every economic system must answer. 4. Analyze the advantages and disadvantages of each of the three economic systems (market, command, tradition). 5. Describe and analyze the different economic goals of different economies. 6. Determine the mix of tradition, command, and market in different economies. 7. Analyze why communism failed. Absolute and Comparative Advantage, Specialization, and Trade 1. Define comparative advantage and absolute advantage. 2. Describe and give examples of the law of comparative advantage. 3. Explain how both parties in a trade gain from voluntary exchange. 4. Define specialization and exchange.

10 Practice in Applying Economic Reasoning 1. Describe and give examples of the law of comparative advantage. 2. Explain how both parties in a trade gain from voluntary exchange. 3. Describe and analyze the economic way of thinking. 4. Graph and distinguish between inverse, direct, and zero relationships. 5. Identify the opportunity costs of various courses of action involving a hypothetical problem. 6. Apply scarcity concepts to a variety of economic and non-economic situations. 7. Define specialization and exchange.

11 Unit 2: The Nature and Functions of Markets Pennsylvania State Standards: D: Predict how changes in incentives may affect the choices made by individuals, businesses, communities, and nations B: Analyze the effect of changes in the level of competition in different markets C: Predict and evaluate how media affects markets D: Predict how changes in supply and demand affect equilibrium price and quantity sold A: Analyze the factors influencing wages D: Analyze the role of profits and losses in the allocation of resources in a market economy. 1. Supply and demand a. Market equilibrium b. Determinants of supply and demand c. Price and quantity controls d. Elasticity i. Price, income and cross price elasticities of demand ii. Price elasticity of supply e. Consumer surplus, producer surplus and market efficiency f. Tax incidence and deadweight loss 2. Theory of consumer choice a. Total utility and marginal utility b. Utility maximization: equalizing marginal utility per dollar c. Individual and market demand curves d. Income and substitution effects Assignments, Assessments and Activities: Chapters 4-9 and Chapter 21 from Principles of Economics by N. Gregory Mankiw Select end of chapter questions from Principles of Economics by N. Gregory Mankiw Mankiw Study Guides for Chapters 4-9 and Chapter 21 Aplia Problem Sets for Chapters 4-9 and Chapter 21 Activities 9-23 from NCEE s Advanced Placement Economics Workbook Previous FRQ s used for review, homework and assessments: o 2000 #3, 2002 #3 (utility maximizing behavior), 2003B #2, 2004B #3, 2004 #2, 2005B #3, 2005 #2, 2006B #2, 2006 #1 (need content on firms) Chapter quizzes and Unit Exam upon completion of all assigned chapters. o Unit Exam includes 2-3 released FRQ s from past years. Student learning objectives: The student will A Market Economy 1. Describe and analyze The Circular Flow of Resources, Goods, Services, and Money Payments.

12 2. Describe and analyze the behavior of buyers and sellers in a competitive marketplace. 3. Provide an overview of supply, demand, and equilibrium. The Law of Demand 1. Describe and analyze what demand is and why consumers buy more of a good or service when the price is lower. 2. Differentiate between a change in demand and a change in quantity demanded. 3. List and explain the determinants of demand. 4. Under specific conditions, determine in which direction a demand curve should shift. 5. Define and distinguish between the income and substitution effects. 6. Define consumer surplus, and analyze why markets maximize consumer surplus. 7. Define diminishing marginal utility, and explain how the law of diminishing marginal utility affects the behavior of consumers in a market economy. Understanding Supply 1. Describe the behavior of sellers in a competitive market. 2. Differentiate between a change in supply and a change in quantity supplied. 3. List and explain the determinants of supply. 4. Under specific conditions, determine in which direction a supply curve should shift. 5. Define producer surplus and analyze why markets maximize producer surplus. Equilibrium Price, Equilibrium Quantity, and the Interrelation of Markets 1. Define and graphically show equilibrium price and quantity. 2. Determine (by using graphs or schedules) the equilibrium price and quantity when given the demand for and supply of a good or service. 3. Explain why the price of a good or service and the amount bought and sold in a competitive market will be the equilibrium price and quantity. 4. Predict the effects of changes in supply and demand on equilibrium price and quantity and on the price of substitute and complementary goods. 5. Graphically show changes in supply and demand and explain which curve has shifted and why. 6. Analyze how buyers and sellers respond to incentives provided by changing market conditions. 7. Explain how markets provide information that enables consumers and producers to allocate resources more efficiently. 8. Analyze how markets act as rationing devices and how markets allocate resources. Elasticity of Demand and Supply 1. Define price elasticity of demand. 2. Define price elasticity of supply. 3. Define and distinguish among elastic, inelastic, and unit elastic demand.

13 4. Explain the characteristics that tend to make demand more elastic or more inelastic. 5. Determine the prices at which a product has elastic or inelastic demand by observing how total revenue changes in response to changes in price. 6. Apply price elasticity of demand to economic problems. 7. Define and distinguish between a normal good and an inferior good using income elasticity of demand. 8. Calculate the elasticity coefficient using the mid-point method. (The arc method) 9. Calculate varying price elasticities of demand along a demand curve of constant slope. 10. Explain the characteristics that make supply elastic or inelastic. 11. Analyze momentary, short-run, and long-run elasticity of supply. Price Ceilings and Floors 1. Define and describe price ceilings and price floors. 2. Illustrate price ceilings and floors on graphs. 3. Analyze the effects of price ceilings and floors in terms of surpluses and shortages. 4. Graph and explain the impact of per unit taxes on supply and demand. 5. Graph and explain changes in consumer surplus, producer surplus and deadweight loss after a tax or subsidy. 6. Analyze how prices act as incentives that influence human behavior. Complex Application Questions in Supply and Demand 1. Apply price theory concepts to analyze market behavior. 2. Analyze how prices act as rationing devices, allocate resources, and determine income distribution. 3. Graph and explain the impact of market forces and government intervention in both the domestic and world markets. 4. Show how a budget constraint represents the choices a consumer can afford. 5. Learn how indifference curves can be used to represent a consumer s preferences. 6. Analyze how a consumer optimizes utility. MU1/P1=MU2/P2 7. Show how a consumer responds to changes in income and changes in prices. 8. Explain how the impact of a price change can be broken down into the income effect and the substitution effect.

14 Unit 3: The Theory of the Firm Pennsylvania State Standards: D: Predict how changes in incentives may affect the choices made by individuals, businesses, communities, and nations B: Analyze the effect of changes in the level of competition in different markets C: Predict and evaluate how media affects markets D: Predict how changes in supply and demand affect equilibrium price and quantity sold A: Analyze the factors influencing wages D: Analyze the role of profits and losses in the allocation of resources in a market economy. 1. Production and costs a. Production functions: short run and long run b. Marginal product and diminishing returns c. Short-run costs d. Long-run costs and economies of scale e. Cost minimizing input combinations 2. Firm behavior and market structure a. Profit: i. Accounting vs. economic profits ii. Normal profit iii. Profit maximization: MC=MR rule b. Perfect competition i. Profit maximization ii. Short-run supply and shutdown decisions iii. Behavior of firms and markets in the short run and in the long run iv. Efficiency and perfect competition c. Monopoly i. Source of market power ii. Profit maximization iii. Inefficiency of monopolies iv. Natural monopoly d. Oligopoly i. Interdependence, collusion and cartels ii. Game theory and strategic behavior e. Monopolistic competition i. Product differentiation and role of advertising ii. Profit maximization iii. Short run and long run equilibrium iv. Excess capacity and inefficiency Assignments, Assessments and Activities: Chapters from Principles of Economics by N. Gregory Mankiw Select end of chapter questions from Principles of Economics by N. Gregory Mankiw Mankiw Study Guides for Chapters 13-17

15 Aplia Problem Sets for Chapters Activities from NCEE s Advanced Placement Economics Workbook Previous FRQ s used for review, homework and assessments: o 1999 #3, 2000 #1, 2001 #1, 2002B #1, 2002 #1, 2003B #1, 2003 #1 (with externalities), 2003 #2, 2004B #1, 2004 #1 (with externalities), 2004 #3, 2005B #2, 2005 #1, 2006B #1, 2006 #1, 2006 #2, 2007B #1, 2007B #2 (game theory), 2007B #3, 2007 #1, 2007 #3 (game theory) Chapter quizzes and Unit Exam upon completion of all assigned chapters. o Unit Exam includes 2-3 released FRQ s from past years. Student learning objectives: The student will Introduction to Market Structure: 1. Describe the major characteristics of perfect competition, monopolistic competition, oligopoly and monopoly. The Costs of Production 1. Define the relationship between inputs and outputs or product and cost 2. Explain the relationships among marginal product, total product and average product. 3. Explain the relationships among marginal cost, total variable cost and average variable cost. 4. Use explicit and implicit costs to determine economic profit and loss. 5. Distinguish economic profit from normal profit. 6. Define and graph total fixed cost (FC), total variable cost (VC), and total cost (TC). 7. Define and graph average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and marginal cost (MC). 8. Calculate AFC, AVC, ATC, and MC given a schedule of the quantity of output and fixed and variable costs at each output level. 9. Explain why MC=ATC at the minimum ATC level. 10. Explain why fixed cost is unrelated to marginal cost. 11. Explain how increasing marginal costs are related to decreasing marginal product. 12. Explain how the law of diminishing marginal returns affects costs. Perfect Competition in the Short Run 1. List the conditions that must be fulfilled if an industry is to be perfectly competitive. 2. Explain why price, marginal revenue, and the demand are equal for a perfectly competitive firm. 3. Compute and graph price, average revenue, and marginal revenue when given the demand schedule faced by a perfectly competitive firm. 4. Explain the profit-maximizing rule for a perfect competitor and state the reasons that the rule works.

16 5. Given data, determine the price and output of a perfectly competitive firm in the short run. 6. Given data, determine the break-even and shut-down points for a perfect competitor. Perfect Competition: Short-Run and Long-Run Equilibrium 1. Given data, determine the price and the output of an individual firm and of the industry in the short run and in the long run. 2. Describe how the entry and exit of firms bring about long run equilibrium. 3. Evaluate the implications of a long-run equilibrium where P=MC=ATC. 4. Derive the firm s short-run supply schedule from cost schedules. 5. Differentiate a long-run average cost curve from short-run average cost curve. 6. Calculate the firm s economic profit at a given price. 7. Describe the long-run adjustment of the firm and the industry to short-run economic profits and losses. 8. Describe the long-run supply schedules for constant cost and increasing cost industries. 9. Evaluate the advantages and shortcomings of a perfectly competitive market. The Monopoly Firm 1. Define marginal revenue. 2. Calculate marginal revenue from a schedule of output and total revenue, and plot marginal revenue and price. 3. Explain why the marginal revenue curve lies below the demand curve when plotted on a graph. 4. Explain why a monopoly firm should never operate on the inelastic portion of its demand curve. 5. Given cost and demand information, find the monopolist s profit-maximizing output. 6. Calculate the monopoly firm s profit or loss at its profit-maximizing output. 7. Compare and contrast the monopolist s profit-maximizing price, output, and profit with those of a perfect competitor. 8. Describe the effect of a monopoly on consumer and producer surplus. Regulating Monopoly: Antitrust Policy in the Real World 1. Analyze the effects of pure monopoly on the price of the product, the quantity of the product produced, and the allocation of society s resources. 2. Identify the socially optimal and fair return price for a regulated monopoly. 3. Identify the characteristics of a natural monopoly and discuss why natural monopolies occur. 4. Describe price determination and analyze its effects on society. 5. Given data, recommend the proper price and output for a monopoly. 6. Compare and contrast the effects of perfect competition and monopoly on society. Monopolistic Competition and Oligopoly 1. Define and discuss the nature of monopolistic competition.

17 2. When given cost and price data, determine the output and price charged by a monopolistic competitor in the short run and in the long run and show on a properly labeled graph. 3. Identify the wastes of monopolistic competition and explain why product differentiation may offset these wastes. 4. Define and discuss the nature of oligopoly. 5. When given cost and price data, determine and show graphically the output and price charged by an oligopolist in the short run and the long run. 6. Discuss the role of nonprice competition in oligopoly. 7. Describe types of nonprice competition used by oligopolies. 8. Discuss the mutual interdependence of oligopolists and analyze how this provides incentives to cheat on a collusive agreement. 9. Use game theory to illustrate how the prisoner s dilemma affects collusive and competitive strategies. Analyzing Market Structure 1. Use the concepts of the theory of the firm to analyze a variety of fictitious and real world issues. 2. Analyze the behavior of perfect and imperfect competitors.

18 Unit 4: Factor Markets Pennsylvania State Standards: D: Predict how changes in incentives may affect the choices made by individuals, businesses, communities, and nations B: Analyze the effect of changes in the level of competition in different markets C: Predict and evaluate how media affects markets D: Predict how changes in supply and demand affect equilibrium price and quantity sold A: Analyze the factors influencing wages B: Evaluate how changes in education, incentives, technology, and capital investment alter productivity D: Analyze the role of profits and losses in the allocation of resources in a market economy. 1. Derived factor demand 2. Marginal revenue product 3. Labor market and firm s hiring of labor 4. Market distribution of income Assignments, Assessments and Activities: Chapters from Principles of Economics by N. Gregory Mankiw Select end of chapter questions from Principles of Economics by N. Gregory Mankiw Mankiw Study Guides for Chapters Aplia Problem Sets for Chapters Activities from NCEE s Advanced Placement Economics Workbook Previous FRQ s used for review, homework and assessments: o 1999 #1, 2000 #2, 2001 #3, 2002B #3, 2003B #3, 2003 #3, 2005B #1, 2005 #3, 2006B #3, 2007 #2 Chapter quizzes and Unit Exam upon completion of all assigned chapters. o Unit Exam includes 2-3 released FRQ s from past years. Additional readings: Chapter 12 from Microeconomics by Paul Krugman and Robin Wells Additional readings: Chapters from Economics: Principles, Problems, and Policies, 16/e by Campbell R McConnell and Stanley L Brue. Student learning objectives: The student will An Introduction to Factor Markets 1. Describe the difference between factor markets and product markets. 2. Describe the difference between a monopoly and a monopsony. 3. Provide examples of what is bought and sold in a product market and in a factor market. 4. Summarize general characteristics of a factor market. How Resource Prices and Determined: Marginal Productive Theory 1. Define derived demand, marginal revenue product, marginal physical product, and marginal resource cost.

19 2. Given data, construct a marginal physical product schedule and a marginal revenue product schedule for a resource purchased in a perfectly competitive resource market when the product is sold in a perfectly competitively product market. 3. Given data, construct a marginal physical product schedule and a marginal revenue product schedule for a resource purchased in a perfectly competitive resource market when the product is sold in an imperfectly competitively product market. 4. State the principle employed by a profit-maximizing firm to determine how much of a resource it will employ. 5. Given data, determine how much of a resource the firm will employ. 6. Given data, state and use the principle employed by a firm to develop the leastcost profit-maximizing combination of resources. 7. Predict the effect of various events on the demand for a resource. Competition vs. Monopsony: The Effects of Resource Market Structure on Wages and Employment 1. Understand what determines the wage rate and level of employment in competitive labor markets. 2. Understand what determines the wage rate and level of employment in monopsonistic labor markets. 3. Compare the wage level and employment level in a competitive labor market to the wage level and employment level in a monopsonistic labor market. 4. Analyze the effects of a minimum wage law in competitive and monopsonistic labor markets. 5. Analyze the effects of labor union tactics in competitive and monopsonistic labor markets. Rent, Interest, and Profits: The Returns for Land, Labor, Capital and Entrepreneurship 1. Define economic rent and explain what determines the amount of economic rent paid. 2. Explain why the owners of land do not all receive the same amount of economic rent. 3. Apply the concept of economic rent (economic surplus) to the salaries of professional athletes. 4. Given the supply and demand for money, determine the equilibrium rate of interest. 5. Distinguish between nominal interest rate and real interest rate. 6. Describe why the interest rate is the return on borrowed funds. 7. Define economic profit and distinguish between normal profit and economic profit. Analyzing Factor Market Concepts 1. Use factor market concepts to graph and analyze a variety of issues both real and fictitious.

20 Unit 5: The Role of Government Pennsylvania State Standards: G: Evaluate various economic systems A: Evaluate the costs and benefits of government decisions to provide public goods and services C: Evaluate the social, political, and economic costs/benefits of potential changes to taxation policies. 1. Market Failure and the Role of Government a. Externalities i. Marginal social benefit and marginal social cost ii. Positive externalities iii. Negative externalities iv. Remedies b. Public goods i. Public vs. private goods ii. Provision of public goods c. Public policy to promote competition i. Antitrust policy ii. Regulation d. Income distribution i. Equity e. Sources of income inequality Assignments, Assessments and Activities: Chapters from Principles of Economics by N. Gregory Mankiw Select end of chapter questions from Principles of Economics by N. Gregory Mankiw Mankiw Study Guides for Chapters Aplia Problem Sets for Chapters Activities from NCEE s Advanced Placement Economics Workbook Previous FRQ s used for review, homework and assessments: o 2001 #2, 2002B #2, 2002 #2, 2003 #1, 2004B #2, 2004 #1, 2006 #3 Chapter quizzes and Unit Exam upon completion of all assigned chapters. o Unit Exam includes 2-3 released FRQ s from past years. Additional readings: Chapter 13 from Microeconomics by Paul Krugman and Robin Wells Student learning objectives: The student will The Economic Functions of Government 1. Define public good. 2. Describe the characteristics of a public good. 3. Develop a rationale for determining which goods the private sector should produce and which goods the public sector should produce.

21 4. Understand the importance of property rights in solving the Tragedy of the Commons. When Markets Fail 1. Explain how private markets can cause externalities. 2. Define and give examples of third-party costs or negative externalities. 3. Define and give examples of third-party benefits or positive externalities. 4. Analyze how positive and negative externalities can cause overproduction or underproduction of goods and services. Use properly labeled graphs to identify amount of over/under production. 5. Analyze the effectiveness of government policies designed to remedy problems caused by positive or negative externalities and use graphs to show optimal quantity and price. 6. Describe Coase Theorem and use it to analyze how negotiations among privateproperty owners can resolve market-allocation problems. The Economics of the Environment 1. Analyze pollution control by applying cost-benefits analysis to achieve optimum amount of pollution cleanup. (MSB=MSC) 2. Explain the market-based incentive approach to cleaning up the environment. (Pigovian taxes, tradable permits, carbon offsets) 3. Describe the information-cost problem, and analyze the effectiveness of government policies to correct it. When Governments Fail 1. Describe the basic tenets of the public-choice model of government behavior. 2. Analyze reasons self-interest leads to the public good in a private market but does not lead to the public good in the government sector. 3. Analyze political behavior using the theory of public choice. The Economics of Taxation 1. Define and differentiate between the ability-to-pay and benefits-received theories of taxation. 2. Define and differentiate between among progressive, proportional, and regressive taxes. 3. Describe the distribution of income in the United States. 4. Describe who pays income taxes and which income earners bear the greatest burden of income taxes. 5. Analyze the effects of government redistribution policies.

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