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Part 4
AP Macroeconomics
This section has six parts. Each of the first five parts corresponds to a unit on the AP
Macroeconomics exam. Each unit part provides a syllabus outline for teaching the unit,
information regarding the concepts covered in the unit and corresponding text material, practice
multiple choice and free response questions. The last part provides a 60 question practice exam.
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Teaching Unit I : Introduction to the Economic Problem. Unit I entails the content area of Basic
Economic Concepts as detailed in the AP* Economics Course Description1 (Content Area I, A-E).
This unit duplicates portions of the instruction in Units I and II in this AP* Instructional Manual
for AP* Micro Economics
NOTE: Teachers who have completed the AP* Micro course may elect to proceed to Unit II,
Measuring the Economic Performance.
I. Plan
Teaching Materials
Instructors Manual
Text readings
The Economic Approach, Chapter 1
Chapter 1, The Economic Approach
Some Tools of the Economist
Chapter 2
Chapter 2, Some Tools of the Economist
Supply, Demand and the Market Process,
Chapter 3
Chapter 3, Supply, Demand and the Market Process
Supply and Demand: Applications and
Extensions,
Chapter 4
Chapter 4, Supply and Demand: Applications and
Extensions
Key instructional objectives: Students do the following
Objectives related to the economic problem
1. define scarcity, choice and cost
Objectives related to analyzing the economic problem
1. construct and interpret production possibility schedules and graphs.
2. list and define the assumptions of production possibility schedules and graphs.
3. define how production possibility schedules and graphs illustrate the issues of scarcity,
choice, and cost.
4. define and calculate absolute and comparative advantages for production and exchange.
5. explain and show the affects of trade on a production possibility model.
6. define allocation, efficiency, and equity
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7. define ways in which societies determine allocation, efficiency, and equity.
Objectives related to the law of demand
1. define and illustrate demand through schedules and graphs.
2. distinguish between change(s) in demand and change(s) in quantity demanded.
Objectives related to the law of supply
1. define and illustrate supply through schedules and graphs.
Objectives related to the laws of supply and demand
1. explain the role of price in a market economy.
2. define and illustrate equilibrium.
3. define and illustrate surpluses and shortages.
Objectives related to the applications to supply and demand
1. define and explain the effects of price ceilings and price supports.
Objectives related to taxation/subsidies
1. define tax incidence
Part 4/Unit I 419
Computational & graphing skills: Students must complete these tasks
Model the following mathematical/graphical skills
1. Graph a production possibility model
2. Explain the shapes of the production possibility curves.
3. Explain how the production possibilities model shows scarcity, choice, and cost.
4. Interpret selected points on the production possibility model.
Formative Signals: The following content and skill areas have been identified as areas of
weakness for students based upon past objective and free response examinations.
Objective Formative Signals: Based upon the
released objective AP* Micro Economics
examinations, less than 50% of the students have
been able to correctly answer questions to
following
Free response Formative Signals: Past
students have found these to be problematic
areas
recognize and interpret absolute advantage and
comparative advantages (and terms of trade)
given novel data (output is constant; r
esources
vary)
calculate opportunity cost given novel data
understands and interpret the distinctions
between a constant cost and increasing cost
solve comparative advantage problems
using inputs constant with outputs varying
AND with outputs constant and inputs
varying.
understand and calculate terms of trade
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Objective Formative Signals: Based upon the
released objective AP* Micro Economics
Free response Formative Signals: Past
students have found these to be problematic
with ceilings/floors
understand difference between supply and
quantity supplied
II. Teach
Recommended sequence of instruction: Teach market concepts in this sequence
Chapter 1
The Economic Approach
1. WHAT IS ECONOMICS ABOUT?, P. 4
The Economic Problem
2. THE ECONOMIC WAY OF THINKING, P. 7
Use the production possibilities frontier to illustrate the economic problem.
Part 4/Unit I 421
Chapter 2
Some Tools of the Economist
1. WHAT SHALL WE GIVE UP? P. 19
Opportunity cost
2. TRADE CREATES VALUE, P. 21
3. THE IMPORTANCE OF PROPERTY RIGHTS, P. 23
Explain the necessary assumptions for trade to occur.
4. PRODUCTION POSSIBILITIES CURVE, P. 28
Technical or productive efficiency
Allocative efficiency
5. TRADE, OUTPUT, AND LIVING STANDARDS, P. 32
6. GAINS FROM SPECIALIZATION AND TRADE, P. 358 (P. 301)
Explain how people gain from specialization and trade.
6. HUMAN INGENUITY AND THE CREATION OF WEALTH, P. 44
7. ECONOMIC ORGANIZATION, P. 45
Make distinctions among the different kinds of economic organization
Chapter 3
Supply, Demand, and the Market Process
1. CONSUMER CHOICE AND THE LAW OF DEMAND, P. 43
2. RESPONSIVENESS OF QUANTITY DEMANDED TO PRICE CHANGES, P. 46
3. CHANGES IN DEMAND VERSUS CHANGES IN QUANTITY DEMANDED, P. 47
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(a) Distinguish between quantity demanded and demand and explain what determines
(b) Distinguish between value and price and define consumer surplus.
Marginal benefit
(This concept will be reinforced and enhanced in succeeding units of instruction)
5. PRODUCER CHOICE AND THE LAW OF SUPPLY, P. 51
6. RESPONSIVENESS OF QUANTITY SUPPLIED TO PRICE CHANGES, P. 55
7. CHANGES IN SUPPLY VERSUS CHANGES IN QUANTITY SUPPLIED, P. 56
Distinguish between quantity supplied and supply and explain what determines supply.
(b) Distinguish between cost and price and define producer surplus.
7. HOW MARKET PRICES ARE DETERMINED; SUPPLY AND DEMAND INTERACT, P.
57
8. HOW MARKETS RESPOND TO CHANGES IN DEMAND AND SUPPLY, P. 61
Explain how demand and supply determine price and quantity in a market and explain the effects
of changes in demand and supply
Chapter 4
Supply and Demand: Applications and Extensions
1. THE ECONOMICS OF PRICE CONTROLS, P. 70
2. BLACK MARKETS AND THE IMPORTANCE OF THE LEGAL STRUCTURE, P. 77
Explain how price ceilings create a shortage, and inefficiency
Price ceiling
Explain how the minimum wage creates unemployment and inefficiency
Part 4/Unit I 423
3. THE IMPACT OF A TAX P. 78
4. TAX RATES, TAX REVENUES AND THE LAFFER CURVE. P. 83
Describe the effects of sales taxes and excise taxes, determine who pays these taxes, and explain
why taxes create inefficiencies, (deadweight loss).
5. THE IMPACT OF A SUBSIDY, P. 87
Describe the effects of a subsidy and determine the potential benefits to seller and buyers
Key conceptual questions: Students demonstrate their understanding of the material by
answering the following key conceptual questions
1. What are the economic goals of any society?
2. What are the different methods used to resolve issues related to economic goals?
3. How does a production possibility model illustrate the economic problems of scarcity, choice,
and cost?
4. What are the guideposts to economic thinking?
5. Why do people trade?
Key conceptual questions: Students demonstrate their understanding of the material by
answering the following key conceptual questions
1. What factors affect quantity demanded (Demand)?
2. What factors affect quantity supplied (Supply)?
3. Why is equilibrium important in a market economy?
4. What is the price elasticity of demand and what factors determine elasticity?
5. How is total revenue related to the price elasticity of demand?
6. What is income elasticity? What are normal goods? What are inferior goods?
7. What is the price elasticity of supply?
8. How do government price ceilings, price floors, taxation, and subsidies change equilibrium
price and quantity?
III. Assess: Suggestions for determining what and how much students have learned.
Past Objective AP* Test: Based upon released objective examinations, the students have been
required to demonstrate the following content related to this unit of instruction. (NOTE: These
question types may duplicate those questions in AP* Micro Economics)
Tasks related to the study of economics
understand the study of economics
know basic assumptions of how markets allocate resources
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Tasks related to scarcity, choice, and cost
recognize a novel example of opportunity cost; distinguish between opportunity cost and fixed
cost
Tasks related to the production possibility model (graph)
understand the trade-offs of moving from one point to another on a production possibility
curve
graph production possibility curve (constant and increasing cost) showing movements from
one point to another point
understand conditions under which an economy operates on or inside a production possibility
frontier
Task to the logic of trade and economic growth
recognize how growth is illustrated with a production possibility curve
recognize impact of comparative advantage on current production possibility curve
Tasks related to the changes in demand and supply
identify examples of the law of demand (inverse relationship between price and quantity
demanded)
recognize events or conditions that would cause a change in the demand for a product
know characteristics of cross elasticity (complements, substitutes)
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Tasks related to reading and interpreting supply and demand graphs to find equilibrium
price and equilibrium quantities.
recognize what shifts in supply/demand will cause a decrease/increase in the equilibrium price
and quantities
know what causes a fall in the price of a product (shifts in both supply and demand)
recognize novel combinations causing changes in supply and demand that cause an increase
in the price of a good with a decrease in equilibrium quantities
recognized novel situations in which the equilibrium price may increase/decrease but the
changes in equilibrium quantities are ambiguous or indeterminate
recognize novel situations in which the change in the equilibrium price is ambiguous or
Past Free Response AP* Questions: Based upon released free response questions, the students
have been required to demonstrate the following content related to this unit of instruction.
(NOTE: The following types of free response questions may also appear on the AP* Micro
Economics free response examination)
Past questions related to the economic problem
1999, 2003, 2008- interpret production possibility diagram and distinguish between
absolute and comparative advantages; explain benefits of trade
2000, 2007B, 1998 apply production possibility model to long-run economic growth
including changes in long-run net investment.
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Past questions related to supply and demand analysis
1989, show and explain an effective (binding) price ceiling
1990, explain the effects on price and output, given a change in demand in competitive
industry
1992, explain and graph how a price ceiling affects quantity demanded and quantity
supplied
1993, explain and graph how a cost change affects an industry supply and demand
1993, explain how a complement’s price affects in terms of price and quantities another
good
1994, explain what happens to price and tax revenues when an inelastic product becomes
more elastic;