1 CONTENT AREA(S): Social Studies COURSE/GRADE LEVEL(S): AP Economics/ 10th - 12th Grade I. Course Overview Advanced Placement Economics provides students with a thorough understanding of the principles and applications of microeconomics and macroeconomics. This rigorous, college-level course, prepares students for both the AP Microeconomics exam and AP Macroeconomics exam. The purpose of microeconomics is to give students a thorough understanding of the principles of economics that apply to the functions of individual decision makers, both consumers and producers, within the economic system. It places primary emphasis on the nature and functions of product markets and includes the study of factor markets and the role of government in promoting greater efficiency and equity in the economy. The purpose of macroeconomics is to give students a greater understanding of the principles of economics that apply to an economic system as a whole. The course places particular emphasis on the study of national income and price-level determination, and also develops students familiarity with economic performance measures, the financial sector, stabilization policies, economic growth, and international economics. Advanced Placement Economics students will be challenged to master economic theory in order to analyze and evaluate current economic issues using supply and demand analysis. II. Units of Study Microeconomics Unit 1: Basic Economic Concepts (1.5 weeks) [SC1, SC8, SC9] a. Scarcity b. Three Fundamental Economic Questions c. Factors of Production d. Opportunity Cost and Trade-offs e. Benefits of trade versus being self-sufficient f. Import versus export g. Different Types of Economic Systems h. Production Possibilities Frontier i. Specialization, Absolute Advantage, and Comparative Advantage Readings: Mankiw, Gregory N., chapters 1-3
2 Unit 2: Law of Supply and Demand (2.5 weeks) [SC2, SC3, SC8, SC9] a. Ten Principles of Economics b. Efficiency versus Equity c. Circular Flow of Economic Activity d. Product versus Factor Market e. Laws of Supply and Demand f. Adam Smith and the invisible hand theory g. Movement of versus movement along a supply and demand curve h. Factors that cause a shift in a supply and demand curve i. Equilibrium Price and Quantity j. Impact on equilibrium price and quantity due to movement of supply and demand curves Readings: Mankiw, Gregory N., chapters 1 & 4 Unit 3: Elasticity, Price Controls, and Government Involvement (2 weeks) [SC3, SC7, SC8, SC9] a. Elasticity b. Elasticity of Supply and Demand c. What impacts an item s elasticity of demand d. Perfectly Elastic versus Perfectly Inelastic e. Calculating elasticity of demand using the midpoint formula f. Elasticity and the slope of a curve g. Elasticity and total revenue h. Total revenue versus profit i. Calculate Income Elasticity j. Calculate Cross Elasticity k. Short Run vs. Long Run (elasticity of supply) l. Price Discrimination m. Price Ceiling vs. Price Floor n. Binding vs. Non-Binding Price Ceiling and Price Floors o. Subsidies p. Tax Incidence and Tax Burden Readings: Mankiw, Gregory N., chapters 5 & 6 Unit 4: Welfare Economics and the Cost of Taxation (1.5 weeks) [SC7, SC8, SC9] a. Total, Consumer, and Producer Surplus b. Welfare Economics c. Tax Revenue d. Deadweight Loss e. Elasticity and Deadweight Loss
3 f. Impact of tax on deadweight loss, total surplus, consumer surplus, and producer surplus Unit 5: Welfare Economics at the International Level and Externalities (1.5 weeks) [SC7, SC8, SC9] a. Tariffs and Quotas b. World Price versus Domestic Price c. Import and Export d. Efficiency and Equity in International Trade e. Effects of Protectionism on Efficiency and Equity f. Externalities and Market Failures g. Market Quantity and Optimal Quantity h. Externalities and Government Intervention i. Subsidy versus Tax Readings: Mankiw, Gregory N., chapters 9 & 10 Unit 6: Public Goods, Common Resources, and Design of the Tax System (1.5 weeks) [SC7, SC8, SC9] a. Excludable versus Exclusive b. Four different types of goods c. Free-rider problem d. Public goods and externalities e. Total benefit versus total cost f. Quasi-Public Goods versus Contestable Public Goods g. Price Excludable Public Goods h. Tragedy of the Commons and common resources i. Externalities and tragedy of the commons j. Gross Domestic Product k. Dollar Value of Goods l. Final Goods m. Intermediate Goods n. Income, Payroll, Excise Tax, and an Efficient Tax o. Marginal tax liability p. Average Tax Rate versus marginal tax rate q. Consumption versus Lump-sum tax r. Different types of tax systems s. Benefits Principle versus Ability-to-Pay Principle t. Vertical versus Horizontal Equity Readings: Mankiw, Gregory N., chapters 11 & 12 Unit 7: Production, Costs, Profits and the Competitive Market (2 weeks) [SC4, SC5, SC8, SC9]
4 a. Firm versus the market b. Theory of production c. Law of Variable Proportions d. Production schedule and production function e. Total and marginal product f. Three stages of production and marginal product g. Variable, fixed, and total costs h. Diminishing marginal product i. Average total cost j. Marginal cost k. Average fixed cost l. Average variable cost m. Marginal revenue n. Break-even point o. Profit-maximizing quantity and price p. Efficient scale q. Economies of scale r. Perfectly competitive market structure and the firm s. Price-takers versus price-makers t. Perfectly competitive firm and economic profit/loss Readings: Mankiw, Gregory N., chapters 13 & 14 Unit 8: Monopoly (1.5 weeks) [SC4, SC5, SC7, SC8, SC9] a. Imperfect versus perfect competition b. Product differentiation c. Natural, geographic, technological, and government monopolies d. Monopolist demand curve e. Monopolist marginal revenue curve f. Price versus quantity effect g. Monopolist profit-maximizing price and quantity h. Monopolist profit i. Monopolist deadweight loss j. Total, consumer, and producer surplus in a monopoly k. Government regulation of a monopoly l. Marginal pricing Readings: Mankiw, Gregory N., chapter 15 Unit 9: Oligopolies and Monopolistic Market Structures (2 weeks) [SC4, SC5, SC7, SC8, SC9] a. Oligopolies b. Self-interest versus cooperation c. Cartels and collusion
5 d. Game Theory (dominant strategy, non-dominant strategy, pay-off matrix, Nash equilibrium) e. Kinked Demand Curve and no collusion f. Downward sloping demand curve and collusion g. Market Price at the kink h. Consumer, Producer, Total Surplus Oligopoly & Monopolist i. Total Revenue, Total Profit, and Deadweight Loss - Oligopoly & Monopolist j. Profit Maximizing Price and Quantity Oligopoly & Monopolist k. Excess capacity and mark-up l. Long run equilibrium of the monopolistic firm Readings: Mankiw, Gregory N., chapters 16 & 17 Unit 10: Factor Markets, Wage Differentials, and Income Inequality (2 weeks) [SC6, SC8, SC9] a. Difference between product and factor market b. Derived demand curve c. Value of the marginal product d. Calculate a worker s marginal product e. Marginal profit per worker f. How many workers should be hired? (value of marginal product = wage rate) g. Wage increase/decrease and the effect on the firm s profits h. Factors that cause a shift in a firm s demand curve for labor i. Marginal factor cost j. Factors that cause a shift in a firm s supply curve for labor k. Monopsony versus monopoly l. Labor Unions m. Compensating differentials n. Employer versus customer discrimination o. Income inequality p. Poverty rate versus poverty line q. In-kind transfers r. Life cycle s. Transitory and permanent income t. Utilitarianism, Liberalism, and Libertarian u. Lorenz Curve Readings: Mankiw, Gregory N., chapters 18-20
6 Macroeconomics Unit 1: Basic Economic Concepts (2 weeks)[sc1, SC9, SC10] a. Scarcity, choice, and opportunity costs b. Production possibilities curve c. Comparative advantage, specialization, and exchange d. Demand, supply, and market equilibrium e. Macroeconomic issues, business cycle, unemployment, inflation, growth Readings: Mankiw, Gregory N., chapters 1-4 Unit 2: Measurement of Economic Performance (2 weeks) [SC2, SC3, SC10] a. National Income Accounts Circular Flow of Economic Activity Gross Domestic Product Components of Gross Domestic Product Real versus Nominal Gross Domestic Product b. Inflation Measurement and Adjustment Price indices Nominal and real values Costs of inflation c. Unemployment Definitions and measurement Types of unemployment Natural rate of unemployment Readings: Mankiw, Gregory N., chapters & 28 Unit 3: National Income and Price Determination (3 weeks)[sc2, SC8, SC9] a. Aggregate Demand Determinants of aggregate demand Multiplier and crowding-out effects b. Aggregate Supply Short-run and long-run analyses Sticky versus flexible wages and prices Determinants of aggregate supply c. Macroeconomic Equilibrium Real output and price level Short and long-run Actual versus full-employment output Business cycle and economic fluctuations Readings: Mankiw, Gregory N., chapters 33 & 34
7 Unit 4: Financial Sector (3 weeks)[sc4, SC5, SC8] a. Money, banking, and financial markets Definition of financial assets: money, stocks, bonds Time value of money (present and future value) Measures of money supply Banks and creation of money Money demand Money market and the equilibrium nominal interest rate b. Loanable funds market Supply of and demand for loanable funds Equilibrium real interest rate Crowding out c. Central bank and control of the money supply Tools of central bank policy Quantity theory of money Real versus nominal interest rates Readings: Mankiw, Gregory N., chapters 26-28, 30, Unit 5: Stabilization Policies (4 weeks) [SC4, SC5] a. Fiscal and monetary policies Demand-side effects Supply-side effects Policy mix Government deficits and debt b. The Phillips Curve Short-run and long-run Phillips curves Demand-pull versus cost-push inflation Role of expectations Readings: Mankiw, Gregory N., chapters 12, 27,35-36 Unit 6: Economic Growth (2 weeks) [SC6, SC7] a. Definition of economic growth b. Determinants of economics growth Investment in human capital Investment in physical capital Research and development, and technological progress c. Growth policy Readings: Mankiw, Gregory N., chapters 25-26
9 Unit 7: Open Economy: International Trade and Finance (2 weeks) [SC6,SC7, SC8 SC9] a. Balance of payments accounts Balance of trade Current account Financial account (formerly known as capital account) b. Foreign exchange market Demand for and supply of foreign exchange Exchange rate determination Currency appreciation and depreciation c. Imports, exports, and financial capital flows d. Relationships between international and domestic financial and goods markets Readings: Mankiw, Gregory N., chapters III. Learning Objectives Microeconomics - College Board Curricular Requirement Scoring Components SC1 SC2 SC3 SC4 SC5 SC6 SC7 SC8 SC9 The course provides instruction in basic economic concepts and promotes understanding of economic decision-making factors, such as marginal analysis and opportunity cost. The course provides instruction in the nature and functions of product markets. Supply and Demand Model. The course provides instruction in the nature and functions of product markets: Consumer Choice. The course provides instruction in the nature and functions of product markets: Production and Costs. The course provides instruction in the nature and functions of product markets: Market Structures. The course provides instruction in factor markets. The course provides instruction in market failure and the role of government in correcting market failure. The course teaches students how to generate graphs and charts to describe economic concepts. The course teaches students how to interpret and analyze graphs, charts, and data to describe economic concepts. Macroeconomics - College Board Curricular Requirement Scoring Components SC1 SC2 The course provides instruction in basic economic concepts, such as marginal analysis and opportunity costs. The course provides instruction in measurement of economic performance, national income and price level determination.
10 SC3 SC4 SC5 SC6 SC7 SC8 SC9 SC10 The course provides instruction in unemployment and inflation. The course provides instruction in the financial sector. The course provides instruction in stabilization policies. The course provides instruction in economic growth and productivity. The course provides instruction in open economy and international trade and finance. The course promotes understanding of aggregate economic activity and the critical evaluation of determinants of economic progress and economic decisions made by policy makers. The course teaches students how to generate charts and graphs to describe economic concepts. The course teaches students how to interpret and analyze charts, graphs and data to describe economic concepts. New Jersey Core Curriculum Content Standards: 9.2 Personal Financial Literacy All students will develop skills and strategies that promote personal and financial responsibility related to financial planning, savings, investment, and charitable giving in the global economy. A. Income and Careers B. Money Management C. Credit and Debt Management D. Planning, Saving, and Investing E. Becoming a Critical Consumer F. Civic Financial Responsibility G. Risk Management and Insurance IV. Essential Questions Microeconomics Unit 1: Basic Economic Concepts Should we care about economics? Unit 2: Law of Supply and Demand Is the law of supply and demand be considered a natural law of human nature, or is it contrived? Unit 3: Elasticity, Price Controls, and Government Involvement Should the government determine price of goods and services? Unit 4: Welfare Economics and the Cost of Taxation
11 Should government use taxation and spending policies for the public good? Unit 5: Welfare Economics at the International Level and Externalities Should economists support free trade? Unit 6: Public Goods, Common Resources, and Design of the Tax System Should government policy address the problem of economic inequality? Unit 7: Production, Costs, Profits and the Competitive Market How should production, costs, and profits help make decisions in competitive markets? Unit 8: Monopoly Can monopolies ever be good for society? Unit 9: Oligopolies and Monopolistic Market Structures Should self-interest or cooperation drive economic decision making? Unit 10: Factor Markets, Wage Differentials, and Income Inequality Why should some people make more than others? Macroeconomics Unit 1: Basic Economic Concepts How does society best manage its resources? Why should supply and demand impact markets rather than some other economic or political force? Should economics be competitive? Unit 2: Measurement of Economic Performance What are the most meaningful ways to measure economic performance? Unit 3: National Income and Price Determination How should we answer questions concerning the money supply? How should we determine the relationship between government taxation, spending policies, and aggregate demand? Unit 4: Financial Sector What is the purpose of money? What should be the role of government and the Federal Reserve in the economy and the regulation of banks? What measurements should be used to answer this question? Unit 5: Stabilization Policies
12 Should the government implement fiscal policy? If so, how? Should we care about how the government measures inflation, the cost of living and the unemployment rate? Unit 6: Economic Growth Why does economic prosperity vary substantially around the world? Unit 7: Open Economy: International Trade and Finance How should we respond to globalization? VI. Instructional Materials Textbook: Mankiw, N. Gregory. Principles of Economics. 6th ed. Mason, OH: South-Western Cengage Learning, Supplementary Resources: Anderson, David and Margaret, Ray. Krugman's Economics for AP. 1st. ed. Worth Publishers, Anderson, David and James Chasey. Favorite Ways to Learn Economics. Thompson Learning, Lopus, Jane S., and John Morton, and Robert Reinke, and Mark Schug, and Donald Wentworth. Exemplary Lessons for High School Economics. New York: National Council on Economic Education, McConnell, Campbell R., and Stanley L. Brue, and Sean Masaki Flynn.Economics: Principles, Problems, and Policies. 19th ed. New York: McGraw-Hill, Morton, John S. Advanced Placement Economics: Macroeconomics. New York: National Council on Economic Education, Taylor, John, and Akila Weerapana. Principles of Economics. 7th ed. Mason, OH: South-Western Cengage Learning, 2012.